HMRC has rolled out new changes for businesses in regards to VAT submissions. As of 1 January 2023, late submission penalties have been introduced, which impacts all VAT-registered businesses, including those with nil or repayment returns. It’s crucial for businesses to be aware of these changes to avoid unexpected penalties.
Understanding the New Late Submission Penalty System
The VAT default surcharge system, which many businesses were familiar with, has been replaced. The new system is not just a rebranding but a complete overhaul that introduces a points-based system for late submissions alongside a change in how interest on late payments is charged. Here’s how the late submission penalties will operate:
Points-Based Penalty System
If your VAT Return will be submitted late, each late VAT Return submission will accumulate a penalty point. Once you reach a certain threshold, set by your accounting period, a £200 penalty is charged. Bad news , this £200 penalty continues for each subsequent late submission while you are at the threshold.
Penalty Point Thresholds varies depending on frequency of your submissions. See below
Annual Submissions: 2 points
Quarterly Submissions : 4 points
Monthly Submission : 5 points
For a business that files quarterly VAT Returns, the threshold is 4 points. If such a business has accumulated 3 points from previous late submissions and then submits another return late, earning them a fourth point, they will incur a £200 penalty. However, if the next return is submitted on time, no penalty is applied, but the point total remains at the threshold. However another late submission would trigger an additional £200 penalty.
Changing Your Accounting Period
If there is a change in how frequently you submit VAT Returns agreed upon with HMRC, your threshold and points will be recalibrated accordingly to reflect this change.
When the New Rules Don’t Apply
The late submission penalty system does not apply to:
- The first VAT return for new registrations
- The final VAT return when cancelling your registration
- One-off returns that do not cover the standard monthly, quarterly, or annual periods
Expiration and Removal of Penalty Points
Penalty points have an expiration date based on when your return was due and can expire after 24 or 25 months. However, there is a way to remove all points before expiration by meeting two key conditions.
Conditions for Removal of All Penalty Points
To clear all penalty points:
Condition A: You must enter a ‘period of compliance,’ ensuring all returns are submitted by the deadline.
Condition B: All outstanding returns from the previous 24 months must be submitted.
Initiating a Period of Compliance
To start your period of compliance and avoid further penalties, begin from the first day of the month following your most recent missed deadline.
Missed Submission Example:
If you missed the submission due on 7th July, your compliance period can start on 1st August.
For a missed deadline of 31st March, you can start on 1st May.
The new penalty system underscores the importance of timely VAT Return submissions. To avoid penalties, it is vital to understand the changes and ensure all submissions are on time. Businesses should consider seeking support and using accounting tools to help adhere to the new rules.
We always advise our clients to stay compliant, this not only prevents financial loss through penalties but also demonstrates good business practice.
If you are behind with you Vat returns or are in need of some guidance in the vat filed call us to arrange a consultation.