Avoid VAT penalties for late payments
How to avoid VAT penalties for late payments in January 2023
If you're a business owner, you know that keeping on top of your finances is crucial. HMRC is introducing a new VAT penalty scheme which will impact anyone filing VAT returns for VAT periods starting on or after 1 January 2023. We are sharing some tips on how to avoid VAT penalties for late payments in January 2023. So read on to find out more!
What are VAT penalties?
HMCR penalties are imposed for all companies that fail to submit a VAT return on time or make late payment of their VAT. Returns must be submitted within 1 month and 1 week of the VAT period end, so 7 May for the quarter ending 31 March. To avoid VAT penalties on late payment, VAT owed must also be paid over to HMRC by the same date.
How are the new VAT penalties for late payment and late submission different?
Under the old regime, surcharges for late submission and payment depended on the level of annual turnover and how often you had been late in the past. There was no surcharge on the first default within 12 months but surcharges for subsequent defaults were:
| Annual Turnover | Less than £150,000 | £150,000 or more |
|---|---|---|
| Second default within 12 months | None | 2%* |
| Third default within 12 months | 2%* | 5%* |
| Fourth default within 12 months | 5% | The higher of 10% or £30 |
| Fifth default within 12 months | The higher of 10% or £30 | The higher of 15% or £30 |
| Sixth or more default within 12 months | The higher of 15% or £30 | The higher of 15% or £30 |
Penalties for VAT late filing
From January 2023, HMRC late filing penalties are calculated using a points basis, in much the same way as points on your driving licence. For each late VAT submission, companies will receive one penalty point.
VAT penalties of £200 will be charged once the penalty thresholds have been reached as follows:
- Annual VAT returns 2 points
- Quarterly VAT returns 4 points
- Monthly VAT returns 5 points
Although no further penalty points will be added, an additional £200 penalty will be charged for each subsequent late submission.
Penalties for late payment
Up to 15 days overdue – no penalty if you pay in full or agree a payment plan
Between 16 and 30 days overdue – 2% on the VAT owed at day 15
31 days or more overdue - 2% on the VAT owed at day 15 plus 2% on the VAT owed at day 30.
There is also an additional penalty which is calculated at a daily rate of 4% per year for the duration of the outstanding balance. This is calculated when the outstanding balance is paid in full or a payment plan is agreed.
Interest charges on late payments
From 1 January 2023, HMRC will charge late payment interest from the day your payment is overdue to the day your payment is made in full at a rate of Bank of England base rate +2.5%.
Resetting your penalty points
You can reset your points total to zero by submitting all your outstanding returns for the previous 24 months and ensuring that your current return is received by HMRC on or before the due date.
HMRC penalty appeal
If you disagree with a penalty decision made by HMRC, you have the right of appeal. You can appeal against penalties imposed for the following reasons:
- an inaccurate return
- sending in your tax return late
- paying tax late
- failing to keep adequate records
If you filed a late VAT return, you can complete an appeal form if you had a reasonable excuse for why you were late. Reasonable excuses include close family bereavement, incapacitated in hospital, computer failure and a range of other legitimate reasons.
Appeals must usually be filed within 30 days of the date the penalty was issued.
Get help to with VAT submissions and payment
For more information on the upcoming changes in VAT penalties for late payments, visit the HMRC website. If you have further questions about VAT or other taxation, contact David Masih, our client relationship partner who explain how OnTheGo Accountants can help your business with tax compliance and mitigation. Call 03330 067 123 or email info@onthegoaccountants.co.uk.
