Introduction
Starting from January 1, 2023, the UK's HM Revenue and Customs (HMRC) has implemented a revamped system of penalties and interest charges for late VAT returns. These changes introduce a point-based system for assessing late submissions, depending on the frequency of your VAT return filings—be it quarterly, annually, or monthly. The good news is that during the entirety of 2023, HMRC will not impose surcharges if you settle your full VAT bill within 30 days of the deadline. To ensure you're prepared for these changes and to stay compliant, it's crucial to understand how the new system works.
The Point-Based VAT Penalty System
Late VAT submissions will now be evaluated on a point-based system by HMRC. The number of points assigned is determined by your VAT return filing frequency, with corresponding penalty thresholds:
- Quarterly filers: You'll receive 4 points, and you have a 12-month period of compliance.
- Annual filers: 2 points will be assigned, and you enjoy a 24-month compliance window.
- Monthly filers: You'll be allocated 5 points, and your compliance period is 6 months.
For each late VAT return, your business accrues penalty points, and once you cross the threshold, you'll face a penalty of £200. These new rules are effective for VAT submissions due after January 1, 2023. HMRC is allowing a "period of familiarization" during the first year, meaning you won't be penalized for your first late VAT return.
Comparatively, the previous system imposed a penalty of two percent of the tax due for each month or part of the month that the return was late, up to a maximum of 12 months.
How the Time To Pay Arrangement Can Help
The Time To Pay arrangement offers an effective way to freeze penalties, especially in light of the rising VAT penalties and interest rates. This scheme also allows you to spread the cost of your VAT bill over a maximum of 12 months. To qualify for the Time To Pay scheme, contact HMRC and explain the reasons behind your delayed payment. This can be a helpful tool for businesses facing financial challenges.
New Interest Charges on Late VAT Submissions
If you fail to settle your VAT bill within 30 days of the deadline, HMRC will apply interest charges on the outstanding amount. These changes are designed to incentivize businesses to file their VAT returns promptly and pay any taxes owed on time.
The interest rates for these charges are determined by the Bank of England's interest rates, which currently stand at 3%. HMRC estimates that these new rules could generate an additional £200 million in government revenue annually.
Conclusion
The introduction of the point-based VAT penalty system and interest charges for late submissions in 2023 represents a significant shift in the UK's tax regulations. Staying informed and compliant is essential to avoid penalties and interest charges. To minimize the impact on your business, consider settling your VAT bill within 30 days of the deadline and explore the Time To Pay arrangement if necessary. As these changes unfold, staying proactive and well-informed will be key to navigating the evolving VAT landscape.
Note: Please note that the content of the above blog and the aforementioned information are solely for the purpose of awareness and are informative in nature. The content is designed with intent to ease the understanding while preserving the essence and importance of the compliance rules and shall not be considered as an ultimate replication of the rules. Affotax does not own any responsibility whatsoever for any unpleasant event that may arise due to the misinterpretation of a specific part or whole of the information.
