2023 New System of Late VAT Return Submission and Payment in UK
Starting on 1 January 2023, the default surcharge will be replaced by a new system of charging penalties for late submission of VAT returns and late payment of VAT.
The new system is to encourage businesses to file on time under the Making Tax Digital (MTD) regime. These new changes aim to simplify and separate penalties and interest and penalize those who repeatedly fail to meet their obligations.
The new VAT penalties regime works on a points-based system. For each VAT Return submitted late, a point is given for each late filing up to a are due. There are different thresholds for monthly, quarterly and annual filing.
Points can only be reset to zero when all late Returns were submitted and certain upcoming Returns depending on the frequency of returns have been submitted on time .
All VAT returns must be submitted by the due date. Points given include Nil or Repayment Returns (returns seeking a refund of VAT).
There is a two-step stage of monetary penalty if VAT payments are not made on time. The first stage is the amount of unpaid VAT to be charged on a percentage of between 2 and 4%. The second stage is an annualized amount accruing daily until paid. Interest will also be charged on late payment of VAT and penalties.
The previous default surcharge regime continues to apply to VAT periods beginning before 1 January 2023.
If a business is taken over by a new owner as a “going concern? the penalty points accumulated by the old business will not be transferred to the new owner.
- Late Submission Penalties
(1)
|
Point-based system
Late submission penalties work on a points-based system under the New VAT penalties regime effective from 1 January 2023.
For each VAT Return submitted late, a point is incurred for each late filing up to a maximum number of points that depends on the frequency of returns that are due. There are different thresholds for monthly, quarterly and annual filing.
Once a penalty threshold is reached, a fixed penalty of ?00 is levied. Each subsequent late submission of VAT return will trigger another ?00 penalty.
A penalty will be charged when the below maximum penalty points threshold reached:
|
Accounting Period
|
Maximum Penalty Points Threshold
|
|
Annually
|
2
|
|
Quarterly
|
4
|
|
Monthly
|
5
|
The points will stay at the threshold until a consecutive number of returns have been submitted on time. However, if the number of late submissions has not reached the maximum points of penalty threshold, less than 4 points for Quarterly for example, and the subsequent submissions are submitted on time, the points will be cancelled after a period of two years.
|
(2)
|
Remove Penalty Points
Any points total can be reset to zero at any time once a business has met the following two conditions:
(a) Complete a period of compliance, submitting all returns by the deadline. The length for Period of compliance varies based on accounting period, below table shows the number of Returns need to file on time to remove points:-
|
Accounting
Period
|
Period of Compliance
|
No. of Returns Require to Remove Points
|
|
Annually
|
24 months
|
2
|
|
Quarterly
|
12 months
|
4
|
|
Monthly
|
6 months
|
6
|
(b) All returns that were due within the preceding 24 months have been submitted.
Example:
Company A whose VAT Accounting Period is on a quarterly Basis;
The company filed late for the first four quarters starting on 1 January 2023;
The company filed on time for the next four quarters.
|
Period Ending
|
31/03/23
|
30/06/23
|
30/09/23
|
31/12/23
|
31/03/24
|
30/06/24
|
30/09/24
|
31/12/24
|
|
Due Date
|
07/05/23
|
07/08/23
|
07/11/23
|
07/02/24
|
07/05/24
|
07/08/24
|
07/11/24
|
07/02/25
|
|
Filing Date
|
20/06/23
|
09/09/23
|
12/04/24
|
12/04/24
|
07/05/24
|
07/08/24
|
07/11/24
|
07/02/25
|
|
Points
|
1
|
2
|
3
|
4
|
4
|
4
|
4
|
0
|
|
Filing Late / On Time
|
Late
|
Late
|
Late
|
Late
|
On Time
|
On Time
|
On Time
|
On Time
|
|
Condition Met
|
|
|
B
|
B
|
A
|
A
|
A
|
A
|
|
This results the penalty points on Period ending 31/12/24 reset to Zero due to both Conditions A and B are met.
| |
- Late Payment Penalties
The new late payment penalties aim to be fairer and more proportionate to the sooner the late payment is paid the lower the penalty rate is levied. The new system applies in first and second stage for late payments, which is fixed penalties and daily penalties.
|
Days Overdue for Payment
|
First Late Penalty
|
Second Late Penalty
|
|
0 to 15
|
No penalty for paying in full or agreed a time to pay
|
N/A
|
|
between 16 and 30
|
Calculated at 2% on the VAT owed at day 15 if paying in full or agreed a time to pay
|
N/A
|
|
Day 31plus
|
Calculated at:
- 2% of VAT owed at day 15.
- plus 2% of VAT owed at day 30
|
A daily rate of 4% per year from day 31 until the outstanding is paid in full
|
Example:
Company Asubmitted30/6/24 VAT Return on time which was 7/8/24;
The VAT liability was ?0,000;
The company did not pay until 27/9/24 which was 51 days after due day，accumulated total penalties is ?43.84
|
Days Qverdue for Payment
|
Overdue Period
|
Calculated at
|
First Late Penalties
|
Second Late Penalties
|
Accumulated Total
|
|
0 to 15
|
7 Aug-22 Aug
|
?0,000 x 0%
|
?.00
|
N/A
|
?.00
|
|
between 16 and 30
|
23 Aug-6 Sep
|
?0,000 x 2%
|
?00.00
|
N/A
|
?00.00
|
|
Day 31 plus
|
7 Sep-27 Sep
|
?0,000 x 2% +(?0,000x4%)/365 x 20 days
|
?00.00
|
?3.84
|
?43.84.00
|
- Interest Charges
Alongside the changes to the penalty system, late payment interested is charged from the first day that the payment is overdue until the day it is paid in full, it is calculated at the Bank of England base rate plus 2.5%.
- Interest on Repayment from HMRC
For VAT Return claiming a repayment starting on or after 1 January 2023, HMRC will pay repayment interest on a tax due to be repaid at the Bank of England base rate minus 1%, with a minimum rate of 0.5%. The days calculated is from the day after the due date or the date of submission, whichever is later until the day HMRC pays the repayment VAT amount due in full.
- Appeal for a Point or a Penalty
HMRC will issue a penalty decision letter explaining why late submission point or ?00 penalty is granted.
A business can always appeal against a penalty, the penalty can be cancelled or amended if a reasonable excuse is accepted by HMRC.
- Professional Advice
The company cannot file or pay on time should get help from HMRC as soon as possible, alternatively, please contact Kaizen for professional advice and support. |
