UK: Implementation of the new VAT penalty regime postponed until January 2023 – what does it mean for your business? 

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The Financial Secretary to the Treasury announced that the new VAT penalty regime has been further postponed. The decision aims to provide HMRC with more time to settle the required system improvements. The new system will affect all UK VAT-registered businesses and will take effect on 1 January 2023.  The delay of the commencement of the new system is not the first time. The schedule of implementation was on 1 April 2020 after the completion of the first ‘soft landing‘ phase of MTD filing. Note that the delay is not relevant to the MTD deadline in April 2022.  



In what ways will the new late payment penalties regime be different from the one that is in place now? 


The VAT penalty regime will be used instead of the default surcharge with amendments on: 

  • Penalties for late payments 
  • Arrangements for payment on time (Time to Pay Agreement (TTPA)) 
  • Harmonization of interest rates (intends to bring VAT in line with other tax regimes) 
  • Penalties based on points for late submission 



What does this mean for your business?

Companies will be filing their first VAT returns via Making Tax Digital in April. HMRC will have more time to perfect its systems and fix any bugs before the fines kick-in in January 2023. In case of VAT reimbursement claims, penalties do not apply (only late filing). Businesses that are VAT registered might accrue points and be penalised for late filing. When points rack up and the threshold is breached, there will be a 200 GBP penalty charge and this can add up quickly ! All missed deadlines will trigger a penalty but you will not gain any points as you must settle the penalty.  


Points expire after two years and can be reset to zero. The following conditions must be met: 


  1. A period of compliance, completing all submission responsibilities on schedule. 
  2. The taxpayer filed all required VAT returns within the previous 24 months regardless of if the submission was late. 




On 8 August 2022, Firm A submits their VAT return for quarter-end June 2022 exactly at 00:01 UK time. It will cost one point. By the end of the year, it has accrued another penalty point. Returns for quarters ending December 2022 and March 2022 are likewise late. Firm A has 4 penalty points as of 8 February 2023 and will be fined GBP 200 if VAT return for quarter-end June 2023 is late. 


If the VAT responsibility is not paid within 15 days of the due date, a penalty of 2% of the VAT payable on the return will be applied. If no payment is made by day 30, 4% will be assessed, and 4% per year calculated daily will be added to the tax debt. Even if the debt is paid within the 15-day deadline, interest is due on the amount until it is paid. Businesses that pay up to 15 days late will not be penalized. 



Prepare your business 

There will always be developmental difficulties with any new system, and businesses should seek guidance if penalties have been charged incorrectly. If you have received surcharges may be able to appeal under both the present and new regimes. Our expert VAT team can help you file an appeal with HMRC and ensure compliance. We have had default surcharges reversed in the past! 


Source: gov.uk



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