New penalty regime for late VAT returns
Goodbye to the VAT default surcharge and hello to the new penalty regime.
Under the previous VAT default surcharge scheme, if a business didn’t submit their VAT return or pay the tax owed on time, they would fall into a surcharge period.
The surcharge period covered the date of HMRC’s notice and ended 12 months from the end of the latest period in default. The amount to pay in surcharge was then a percentage of the VAT unpaid at the due date. Defaulting again, caused the surcharge period to extend and the amount payable increase.
From 1 January 2023, the new penalty regime applies if you submit your VAT return late. This new penalty regime also applies to nil and repayment VAT returns.
So how does the new penalty regime work?
For each VAT return that a business submits late, HMRC will give them a point until they have reached the penalty point threshold. This threshold will also vary depending on how frequent you submit your VAT returns:
| How often VAT returns are submitted | Point threshold |
| Annually | 2 |
| Quarterly | 4 |
| Monthly | 5 |
As a result, when a business reaches their point threshold, they will receive a penalty of £200. If a business then defaults again, another penalty of £200 will be charged!
If you have a non-standard accounting period , the penalty points threshold will be adjusted accordingly. The same can be said if you have agreed with HMRC how often you submit VAT returns.
If you take over a VAT-registered business as a going concern and that business has penalty points, these will not be carried over and the clock will restart. This is even the case when the VAT number transfers over.
VAT groups and the penalty regime
When a representative member changes, any points they have will be transferred to the new representative member.
However, a VAT group’s points total will not change if a person leaves or joins a group.
VAT returns NOT affected:
The new rules do not apply in the following situations:
- It’s the first VAT return of a newly VAT registered business
- It’s the final VAT return after the business has cancelled its registration.
- One-off returns covering a period other than a month, quarter or year i.e. you submitted a 4 month return because you are moving to submitting annually from quarterly.
Can points ever be removed?
Short answer is YES however, you will have to work for it!
If you haven’t met your point threshold, individual points will expire automatically in the following ways:
The deadline for your return was NOT the last day of a month, therefore your penalty points will expire 24 months after this.
The deadline for your return WAS the last day of the month, therefore your penalty points will expire 25 months after this.
If you have used up your point threshold, you need to meet the following two conditions:
- Complete a period of compliance which will again vary depending how often you submit a return
- Submit all outstanding returns for the period of 24 months.
These rules can cause some confusion and because of this we recommend that you seek advice and call us today to discuss any concerns you may have.
