VAT – Update to penalties in 2023

From the start of 2023, HMRC have changed the way that penalties work if you submit your VAT return late. It’s a bit of a change so it’s worth getting to grips with this, so you know the risks.

When does this kick in? This is for VAT quarters starting from 1st Jan 2023 onwards.

When are you meant to submit your VAT return? This has not changed. You get 1 month and 7 days after the end of your quarter. E.g. the VAT quarter ending 31 March 2023 needs to be submitted by 7th May 2023.

Even if it’s a nil return, of you are actually in a repayment position with HMRC?  Yes – this applies to all returns.

Penalty points – Under the new system you will receive a penalty point for each return which is submitted late.

The penalty point limits depend how regularly you submit returns:

  • Annual returns – 2 points
  • Quarterly returns – 4 points (this is the most common set up)
  • Monthly returns – 5 points

Once you reach your penalty points ‘threshold’, the business will receive a £200 penalty. No more points are added, but an additional £200 penalty will be charged for any subsequent late submissions.

Can you reset your penalty points? Yes but you have to submit all returns on time for the following period:

  • Annual returns – 24 months
  • Quarterly returns – 12 months (this is the most common set up)
  • Monthly returns – 6 months

How about late payments? There is no penalty for late payments up to 15 days after the payment due date.

Late payments made between 16 days and 30 days past the due date, a 2% penalty (based on the outstanding VAT bill) will be added to the liability.

Late payments after 30 days incur an additional 2% penalty – so 4% in total if nothing paid within 30 days.

Late payments after 31 days – An additional daily penalty kicks in, based on a 4% per year of the total bill.

For 2023 – HMRC have confirmed that no penalties will be payable until payments are 30 days overdue. This is just while people get to grips with the new scheme.

If you are struggling to pay your VAT bill, the advice is to submit your return on time and then speak to HMRC about a payment arrangement.

James Watson