Late submissions, late payments and interest have changed for VAT-related payments as of 1 January 2023 – this even applies to nil returns!
The new system is points based, with one point issued for each late submission. Once you hit the penalty threshold you’ll get a £200 penalty, with further penalties applied with each subsequent late submission. There is also a “period of compliance” – this being the time after getting a penalty that you have to submit all returns on time. The period of compliance and the payment threshold varies depending on how often you are due to submit your returns:
• Monthly VAT submissions – 5 points and 6 months period of compliance
• Quarterly VAT submissions – 4 points and 12 months period of compliance
• Annual VAT submissions – 2 points and 24 months period of compliance
Once you have started to build up points you can get this reset to zero by making sure all outstanding VAT returns due for the previous 24 months have been received and submitting subsequent returns by the due date during your period of compliance.
Late payments have a staggered charging system, depending on how late you pay. Up to 15 days overdue and you’ll not be charged a late payment penalty if you pay what you owe or arrange a payment plan. Between 16 and 30 days, you’ll receive a first penalty calculated at 2% on the VAT you owe on day 15 if you pay in full or agree a payment plan.
Go to 31 days or more and you’ll receive a first penalty that will be calculated at 2% on the VAT you owe at day 15, plus an additional 2% on the VAT you owe at day 30. You’ll then also receive a second penalty, calculated at 4% per year for the entire time there’s an outstanding balance until it is paid in full or a payment plan is agreed.
Luckily, there is a grace period to get used to the new system – no first penalties will be issued in 2023 as long as you pay in full within 30 days of the due date. However, you will still be charged late payment interest at 2.5% on top of the Bank of England base rate.
HMRC will also pay you repayment interest on any VAT owed for periods starting on or after 1 January 2023, calculated at the Bank of England base rate minus 1%, with a minimum of 0.5%.
Our top tip: With the current cost of living crisis affecting a number of businesses, paying VAT late could be a very realistic possibility. However, by making sure your returns are submitted on time and then communicating with HMRC, it is more than possible to avoid the fines and set up a payment plan – talk to us about how we can help you with all of this.