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As the MTD project rolls on, HMRC has announced that, for VAT periods starting on or after 1 January 2023, the default surcharge will be replaced by new penalties if VAT returns or VAT payments are late.
Under these planned changes, there could be a penalty charged if the return is submitted late even if the payment was made on time. There will also be changes to how VAT interest is calculated.
Late filing penalties
The changes will affect all those submitting VAT returns for accounting periods starting on or after 1 January 2023. Any nil or repayment VAT returns received late will also be subject to late submission penalty points and financial penalties.
Late submission penalties will work on a points-based system. For each VAT return submitted late there will be one late submission penalty point.
Once a penalty threshold is reached, there will be a £200 penalty and a further £200 penalty for each subsequent late submission.
The late submission penalty points threshold will vary according to the submission frequency.
For annual submissions, the penalty points threshold is two and the period of compliance is 24 months
For quarterly submissions, the threshold is four points and the period of compliance 12 months.
For monthly submissions, the threshold is five points and the period of compliance is six months.
Points will be reset back to zero if returns are submitted on or before the due date for the period of compliance – this will be based on the submission frequency.
For late payment penalties, the sooner the VAT is paid the lower the penalty rate will be.
Up to 15 days overdue – there will be no penalty if the VAT is paid in full or a payment plan agreed on or between days 1 and 15.
Between 16 and 30 days overdue – a first penalty calculated at 2% on the VAT owed at day 15 if paid in full or a payment plan agreed on or between days 16 and 30.
31 days overdue – a first penalty calculated at 2% on the VAT owed at day 15 plus 2% on the VAT owed at day 30 if paid in full or a payment plan agreed on or after day 31.
More than 31 days overdue – a first penalty calculated at 2% on the VAT owed at day 15 plus 2% on the VAT owed at day 30.
There will then be a second penalty 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.
To give businesses time to get used to the changes, HMRC will not be charging a first late payment penalty for the first year from 1 January 2023 until 31 December 2023, if VAT is paid in full within 30 days of the payment due date.
How late payment interest will be charged
From 1 January 2023, HMRC will charge late payment interest from the day the payment is overdue to the day the payment is made in full. This late payment interest will be set at base rate plus 2.5%.
Introduction of repayment interest
The repayment supplement will be withdrawn from 1 January 2023. For accounting periods starting on or after 1 January 2023, HMRC will pay repayment interest on any VAT owed.
This will be calculated from the day after the due date or the date of submission (whichever is later) and until the day HMRC makes the repayment VAT amount due in full.
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