The New Penalty Regime 1st January 2023 

Deeks VAT Article December 2022

HMRC will introduce a new penalty regime on the 1^st January 2023, which will be much fairer than the current draconian default surcharge system. HMRC’s aim of the new system is to penalise those that are persistently late filing and paying, rather than those that make the occasional mistake due to banking or timing errors.  

The new system will penalise taxpayers based on 1) late filing and 2) late payment. We will discuss the new rules for late filing first.  

Late Filing Penalty  

Where the VAT return is filed late the penalty will be based on a points accumulation system. Taxpayers will get a point for each late VAT return. Once they have reached the points threshold, they will be charged a £200 fine.  

The threshold depends on the frequency that the VAT returns are submitted, that is, monthly 5, quarterly 4 and annually 2.  

All returns will fall into this regime, which means nil returns and repayment returns will now be subject to penalties.  

How to get out of the late penalty regime 

To return to nil points the following two conditions must be: 

• The taxpayer must have submitted all returns in the past 24 months  
• The taxpayer must have submitted all quarterly returns in the previous 12 months after reaching the points threshold. The period for taxpayers on annual returns is 24 months and 6 months for taxpayers on monthly returns. 

Appeals  

Appeals can still be made against the penalties, but as they will be much less harsh, we expect there to be fewer. Reasonable excuse is still also available.  

Late Payment  

This new penalty is based on ‘how’ late the payment is. Where the payment is late by 15 days from the due date the penalty is 2% of the VAT due. A further 2% penalty of the tax due is charged from 15 days late to 30 days late. Thereafter an annualised penalty of 4% will apply to the VAT still outstanding.  

In addition to this, interest will be payable at 2.5% above the Bank of England’s base rate. The interest is not really interest but compensation to HMRC to put it in the position it would have been had it of been paid on time.  

Late payment penalties can be reduced by the following:  

• Submit returns on time 
• Pay all VAT returns by direct debit 
• Arrange a formal time to pay agreement with HMRC, if you have problems paying. This will prevent penalties being charged, but not interest  

• Make part payments 

In conclusion, we strongly recommend that you inform clients who submit zero rated and nil returns, such as doctors, pharmacists, construction clients building new zero-rated houses, exporters, book shops and many more.  

Please note that if you submit and pay your return on time, these new rules will be as useful as a chocolate teapot.  

Please do contact Jane on jane@deeksvat.co.uk or 07710 553831 should you wish to discuss this matter or any other VAT matter. We are always happy to offer a free, no obligation consultation. 

The Repayment Supplement is coming to an end on the 31^st December 2022. 

This is where HMRC pay the business a 5% repayment supplement where any repayment return is delayed for more than 30 days after its submission.  

It is being replaced by a repayment interest that will be 1% less than the Bank of England’s base rate. If the bank of England’s base rate falls below 1% a minimum rate of 0.5% will apply.