Penalty Point System – VAT (Update 01/01/2023)

Introduction

• The new penalty system is a point-based system (like when you’re driving)
• Each time your VAT return is filed late, you will receive a penalty point
• Penalties will be charged at different rates based on when the data is received
• This change was implemented from 1^st January 2023

Late submission penalties

• There will be a fixed penalty of £200.00 once a penalty threshold is reached
• The thresholds are as follows:
  • Annual Returns – 2 points
  • Quarterly Returns – 4 points
  • Monthly Returns – 5 points
• An additional £200.00 penalty will be added every time you are late to file your return after the threshold is reached

How/when points are removed

• Points can be removed once 2 conditions are met:
  • A period of compliance – you will need to reach a length of time where you have completely complied with the submission rules, this time depends on how often the returns are submitted:

Annual Returns – 24 months

Quarterly Returns – 12 months

Monthly Returns – 6 months

• All VAT returns due in the last 24 months have been received from HMRC
• Once these 2 conditions are met, the points will be removed, and you will be back at 0
• Points will also automatically expire after 24 months

Late payment penalties

• Late payment penalties will depend on when the payment is made. Please see below:

• The penalty for the boxes highlighted in red is calculated as follows:
  • The penalty amount on day 31/365 days (1 year) x the amount days till the payment is made from the 31^st day

Period of familiarisation

• There is a period of familiarisation which started 1^st January 2023 and will end on the 31^{st of} December 2023. See below:

Late Payment Interest

• A late payment interest will be applied
• This will be calculated at a rate of 2.5% plus the Bank of England base rate
• It will be charged from the day the payment is overdue (8^th) until the day it’s paid in full
• Late payment interest would also apply to late submission and late payment penalties if they are paid after 30 days
• See an example below:

• The late payment interest is calculated as follows:
  • The amount due to HMRC / 100 x the interest rate. That amount is then /365 days (1 year) x the amount days of till the payment is made from the 8^th

Repayment Interest

• A late repayment interest will be applied to HMRC that will be owed to you
• This will be calculated at the Bank of England base rate minus 1%, with a minimum rate of 0.5%
• It will be calculated from the day after the due date or the date of submission (whichever is later) until the date a repayment is issued
• See an example below: