Upcoming changes to VAT penalties & VAT interest charges: Replacement for VAT penalty and interest regime delayed until 1 January 2023
16th June 2022
The new VAT penalty system was scheduled to come into effect from 1 April 2022, but in a Written Ministerial Statement Lucy Frazer (Financial Secretary to the Treasury) has announced that it will now apply from 1 January 2023. “This extra time allows HMRC to ensure the IT changes necessary for the new penalties and interest charges can be introduced as effectively as possible, ensuring a high standard of service to customers.” The existing default surcharge is expected to remain in force until the end of the year.
The Rowleys team will keep you updated as changes are announced.
The old regime
The current VAT penalty system is dealt with under the “default surcharge regime”; this involves entering into a 12 month period for late submission of VAT returns or late payments. If you default again within 12 months, the surcharge period is extended for another 12 months and you may also have to pay a “surcharge” percentage on the outstanding VAT increasing per defaults made.
The new regime
The default surcharge regime is to be replaced by a points-based system of late submission penalties for failure to file returns on time, and late payment penalties for failure to pay VAT within 15 days of the due date. For example for each VAT return you submit late you will receive one late submission penalty point. Once a penalty threshold is reached, you will receive a £200 penalty and a further £200 penalty for each subsequent late submission.
For late payment penalties, the sooner you pay the lower the penalty rate will be.
- Up to 15 days overdue you will not be charged a penalty if you pay the VAT owed or agree a payment plan.
- Between 16 and 30 days overdue you will receive a first penalty calculated at 2% on the VAT due.
- 31 days or more overdue you will receive a first penalty calculated at 2% on the VAT you owe at day 15 plus 2% on the VAT you owe at day 30. You will receive a second penalty calculated at a daily rate of 4% per year for the duration of the outstanding balance.