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Starting January 1, 2023, there has been a progressive shift in how penalties are charged for late VAT returns and late VAT payments. For the first twelve months, HMRC has consented to a concession. So what exactly are the specifics?
The VAT default surcharge ended on December 31, 2022. A new VAT penalty system took effect on January 1, 2023. HMRC’s general guidance states that the new system will only penalize “a tiny fraction of individuals who regularly breach their filing obligations.”
The new system will not charge a late payment penalty if you pay your VAT bill in full within 15 days of becoming due. However, if not paid, a 2% penalty will be charged on tax payable between days 16 and 30 and another 2% underpaid after 30 days. The late payment interest charged for any tax not paid by the due date is calculated using the Bank of England base rate + 2.5%.
A penalty was charged for late payments before implementing the new system. If the return was late, but the VAT was paid in full, there would be no financial penalty. This would still be the case even if the return were submitted late. If you file your returns quarterly, you are subject to a £200 fixed penalty when you reach four points. You will earn one point for each late return if you file quarterly returns.
If you pay all of your taxes within 30 days of the due date, you will not be charged a penalty during the first twelve months of the new system. Specifically, there will be no 2% penalty for tax paid between days 16 and 30. The 2% penalty will apply for a tax due by day 16 for periods commencing on or after January 1, 2024.