With the second part of the government’s plan to digitalise tax administration around the corner, a new points-based penalty regime is to commence on 1 January 2023.
The penalty regime applies to all who are required to submit a VAT return, this is inclusive of VAT-registered businesses, and all affected by the upcoming Making Tax Digital for Income Tax Self-Assessment.
Structured around a points system with one point issued for each deadline missed, the regime has a points threshold determined by the frequency of your VAT returns.
Submission Frequency | Threshold | Period of Compliance |
Annually | 2 | 24 months |
Quarterly | 4 | 12 months |
Monthly | 5 | 6 months |
Note that any nil or repayment VAT returns submitted late are still subject to penalty points and fines.
Once a points threshold has been reached a financial penalty of £200 will be issued and a further £200 fine will apply for every late submission thereafter.
In order to reset your points to zero you must submit all returns and payments on time for the course of the relevant period of compliance stipulated in the table above.
LATE PAYMENT PENALTY
In addition to the late penalty points regime for late return submissions, HMRC has introduced a late payment penalty scheme that is a percentage based on the length of time the debt is outstanding.
Period Debt Is Outstanding | Penalty Percentage |
Up to 15 days outstanding | No penalty if the VAT is paid in full or a payment plan is agreed upon between 1 and 15 days |
Between 16 and 30 days outstanding | A first penalty will be issued calculated at 2% on the VAT you owe on day 15 plus 2% on the VAT you owe on day 30 |
31 days or more outstanding | A first penalty is calculated at 2% of the VAT owed on day 15 plus 2% on the VAT you owe on day 30. |
HMRC is providing a period of grace to allow you time to become familiar with the changes implemented therefore will not charge a first late payment penalty for year one between 1 January 2023 and 31 December 2023 providing you pay in full within 30 days of the payment due date.
At Pierce, we have a dedicated and experienced Cloud Accounting team that can assist if you have any questions in relation to the new penalty regime or if you are unsure how Making Tax Digital for Income Tax Self-Assessment will affect you. Please contact on 01254 688130.
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