VAT interest and penalty changes beginning in January 2023

Soon, new VAT interest rates and late filing and payment penalties will be implemented.

The changes will impact everyone who submits VAT returns for accounting periods beginning on or after January 1, 2023. Whether or not a tax is owed, compliance is still necessary. Any late-received NIL or repayment VAT returns will also be assessed as late submission penalty points and monetary fines.

VAT penalty scheme based on points

The system for calculating late submission fines will be based on points starting in January 2023. You will be assessed one late submission penalty point for each VAT return that you submit after a particular amount of time has passed.

A taxpayer will receive a £200 fine once they reach a particular threshold. After that, each further late submission will result in a £200 fine.              

The threshold for late submission penalty points will change according to how frequently each taxpayer submits.

Submission frequency Maximum points for penalties       Period of compliance

Annually                                                         2                             24

Quarterly                                                       4                                                12                         

Monthly                                                          5                                                6

For the following cases, it will also be able to reset points that have already been awarded to zero:

Submit VAT returns by the due date for your compliance period, which will depend on how frequently you do so.

Ensure HMRC has received all due VAT returns for the past 24 months.

Penalties for paying your VAT late

Penalties are only paid if the actual VAT payment is not made on time after the VAT return has been submitted. This holds even if the return was submitted on time, as it usually was. The amount will vary, and the penalty rate will be reduced the sooner a payment is made.

·        Payment delay of up to 15 days

If you pay the VAT you owe in full or arrange a payment schedule on or between days 1 and 15; you will not be assessed a penalty.

·        VAT payment is 16 to 30 days past due.

If you pay in full or agree to a payment plan on or between days 16 and 30, you will avoid the first penalty, which is computed at 2% of the VAT you owe on day 15.

·        VAT payment is overdue by at least 31 days.

The first penalty of 2% on the VAT you owe on day 15 plus 2% on the VAT you owe on day 30 will be due.

The remaining tax owed will then be subject to a second penalty. This is calculated for the entire period that the outstanding sum is outstanding at a daily rate of 4% annually.

Once the outstanding sum is paid in full or when a payment plan has been established, the second penalty is eliminated.

Grace period to familiarise yourself with new VAT regulations

HMRC is giving people time to adjust to the changes before the total penalties take effect, as is frequently the case. For the first year beginning on January 1, 2023, and ending on December 31, 2023, there won't be any first-time late payment penalties assessed, provided that the VAT is fully paid within 30 days of the payment due date.

How interest for late payments will be assessed

From the day a VAT payment is past due until the day the payment is received in full, HMRC will begin charging late payment interest as of 1 January 2023.

Interest on overdue payments is computed using the Bank of England base rate plus 2.5%.

Introduction of interest on repayment

The repayment supplement will stop being offered as of 1 January 2023.

HMRC will reimburse taxpayers for any unpaid VAT for accounting periods beginning on or after 1 January 2023, along with payback interest.

This payment will be computed starting the day after the submission deadline or the due date, whichever comes first, and continuing until HMRC fully reimburses you for the owed VAT.

The Bank of England base rate will be subtracted 1% to determine repayment interest. Even if the calculation of repayment interest yields a lower percentage, the minimum interest rate will always be 0.5%.

Please get in touch with us at info@cheylesmore.com if you need assistance with your VAT compliance.