Did you know that changes lie ahead for VAT penalties and interest rate charges?
Make sure you are prepared, as they will apply to everyone who submits a VAT Return from 1 January 2023.
HM Revenue & Customs (HMRC) has stated that more detailed guidance is set to be published this December, but they have this month released details of what the changes will entail.
What are the changes and who will be affected?
For the VAT period starting on or after 1 January 2023, new penalties will replace the default surcharge for VAT Returns submitted or paid late.
It will apply to everyone who submits a VAT Return for accounting periods starting on or after 1 January 2023.
Meanwhile, any repayment VAT Returns received late will be subject to penalty points and financial penalties.
What happens if I submit my VAT return late?
A points-based system is set to be introduced for late submission penalties.
Each VAT Return submitted late will receive one late submission penalty point. A late submission penalty point threshold, based on the frequency of submission, is also set to be introduced.
Once a penalty threshold is reached, there will be a penalty of £200 and an extra £200 penalty for each subsequent late submission.
The late submission penalty points threshold varies according to frequency of your submissions.
People who make submissions annually will have a penalty points threshold of two, quarterly submissions will have a penalty points threshold of four and monthly submissions will have a penalty points threshold of five.
What happens if I pay my VAT late?
If you pay the VAT you owe in full or agree a payment plan with HMRC between days one and 15 of being late, a penalty will not be charged.
A first penalty at two per cent of the VAT owed on day 15 will be incurred if you pay in full or agree a payment plan between days 16 and 30.
As well as the first penalty, another two per cent of the VAT owed on day 30 will be added if payment is overdue on day 31.
A second penalty of four per cent per year for the during of the outstanding balance will be incurred.
To help people get used to the changes, HMRC will not be charging a first late payment penalty from 1 January to 31 December 2023 if payment is made in full within 30 days of the payment due date.
What about late payment interest?
HMRC will charge late payment interest from the day payment is overdue to the day it is paid in full. Late payment interest is calculated at the Bank of England base rate, plus 2.5 per cent.
Do you need help with VAT and want to get prepared for the changes? For expert advice, contact our team today.