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  • Barry Adams

HMRC VAT penalty reform


The way VAT penalties are incurred is changing from periods beginning on or after the 1st January 2023.


There will be two separate penalty schemes: for late submission and late payment.


Late Submissions


For each late submission, you will incur a penalty point, and when you accumulate 4 points you will be charged a £200 penalty. You will then subsequently be charged another £200 penalty for each further late return.


To have your points reset to 0 you will need to:

1. Successfully submit on time 4 consecutive VAT returns

2. Ensure the last 8 returns have all been submitted to HMRC


Late Payments


Where a payment is made late, the level of penalty will depend on how late the payment is made.


It is important to note that if you have agreed a payment plan with HMRC to pay your VAT, the date you arranged the plan will be considered by HMRC as the day you made payment in full.


Penalties are only charged when you are 16 days late in paying. In that case, a 2% penalty will be charged and an additional 2% if it is still outstanding after 31 days.


Where payment is made after 31 days there is also an additional penalty with an annual rate of 4% charged daily until payment.


Late payment interest will be charged at the bank of England base rate plus 2.5%, so the current interest rate is 6.5% (correct March 2023).


Direct Debits


To ensure you are not affected by the new penalties we encourage you to ensure you have a VAT direct debit in place.


This can be set up from your business tax account by adding VAT as a tax and following the instructions.


If you need assistance or would like us to walk you through the process, please get in touch.

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