From 1 January 2023 a new and slightly more complex penalty regime for failure to submit VAT returns and non-payment of VAT liabilities will be initiated. This was originally announced for 1 April 2022 but has since been deferred to the following year. The new regime will be a points-based system. It is designed to penalise repeat offenders as opposed to those who occasionally miss the deadline.
Late Submissions of VAT Returns
A maximum £200 penalty will be imposed for not filing a VAT return on time. However this will depend on the compliance history of the taxpayer. Every time a taxpayer misses a deadline they will incur a point. The threshold of these points will depend upon the submission frequency. Annually would be 2 points, quarterly would be 4 points and monthly would be 5 points. Only once this threshold is reached would a penalty be issued. If the taxpayer then ensures that filings are made on time, then after a certain period of time the points will be reset to zero. Again this depends on the submission frequency. So for annual submissions it will be 24 months, quarterly would be 12 months and monthly would be 6 months. It is important to note that if the threshold is not reached then after 24 months the points will expire.
Late Payment
If the tax is paid in full within 15 days then no penalty will be issued. If it is paid between day 16 and day 30 then a 2% charge will be added. From day 31 a 4% per annum charge which is accrued on a daily basis will be imposed until the tax is fully paid. All these charges relate to the outstanding tax due.
Time to Pay
Taxpayers will be afforded the opportunity to set up a time to pay arrangement. This will mean that no further penalties will be applied as an agreed schedule of payments will be in place.
Reviews and Appeals
The points and/or penalties can be challenged if taxpayers have a reasonable excuse. The process is similar to that of other matters such as penalties and assessments. The appeal will initially be subject to an internal HMRC review and thereafter can be referred to the First Tier Tax Tribunal. It is worth noting that HMRC, in particular circumstances they deem appropriate, have the discretion to not impose a point or issue a penalty in the first place. However, once a point or penalty is imposed then the normal review and appeal process must be followed.
Conclusion
We welcome the new regime as it seems a fairer and more reasonable approach. It is understandable that for whatever reason sometimes businesses will miss filing deadlines. In such situations where there has been a history of compliance it seemed harsh to automatically penalise them which was the case with the default surcharge system. This new regime seems to recognise and differentiate these taxpayers from others who consistently fail to make submissions.
How We Can Help
Part of the comprehensive service of Independent Tax is that we offer advice on VAT matters. So please do not hesitate to get in touch if you require such assistance.
