The new points-based penalty system for late VAT return submissions began on 1st January 2023, meaning the first monthly returns to be affected were due by 7th March. The first quarterly returns affected are due by 7th May.
This new regime replaces the old default surcharge system, along with a separate penalty regime for late VAT payments and a new system for charging interest.
From the start of 2023, the late submission penalties will apply for all accounting periods if a VAT return is submitted late – including nil VAT returns and repayment returns.
This means that if you keep missing VAT return
deadlines and accrue too many late submission penalty points, you could be hit with a £200 fine. Keep reading to learn how the points system works and how to avoid getting a financial penalty.
Late VAT penalty points thresholds
VAT-registered businesses are expected to submit a Value Added Tax return by the deadline for their accounting period. Every time a trader misses a deadline, whether it’s monthly, quarterly, or annually, they will receive 1 penalty point.
There is a different points threshold depending on the submission frequency, but if the trader continues to miss deadlines after the first time and receives a certain amount of penalty points, they will have to pay a £200 fine.
These are the points thresholds for each VAT accounting period, indicating how many late submissions you can make before having to pay a fine:
|
VAT accounting period |
Penalty points threshold |
|
Monthly |
5 |
|
Quarterly |
4 |
|
Annually |
2 |
Some late VAT returns will not receive a penalty point in certain circumstances. For example, the first submission for a newly VAT-registered business, the final submission after de-registering, or a one-off submission covering a different period.
Late VAT return compliance
The points threshold is not a limit, meaning you can continue to accrue penalty points and further fines. If the trader passes the threshold and then misses further submission deadlines, HMRC will charge an additional £200 for each late submission.
In order to avoid this and reset their penalty points to zero after hitting the threshold, the trader must submit every consecutive VAT return on time throughout a minimum ‘compliance period’. Here are the compliance periods for each VAT accounting period:
|
VAT accounting period |
Compliance period |
|
Monthly |
6 months |
|
Quarterly |
12 months |
|
Annually |
24 months |
For example, from the fifth late monthly submission onwards, a £200 fine would be charged for every late return. If the trader was on 4 penalty points and wanted to avoid the fine, they would have to submit 6 consecutive returns on time for their points balance to reset.
Penalty points can only be removed and the balance reset to zero if the trader ensures that all outstanding VAT returns from the previous 24 months have been submitted, and follows the relevant compliance period.
Otherwise, individual penalty points will expire after 24 months (if the submission deadline wasn’t on the last day of a month) or 25 months (if the return was due on the last day of a month).
Late payment penalties and interest
In addition to getting penalty points for late filing, traders also have to bear in mind that submitting their return late makes it likely that they’ve also missed the payment deadline.
With the exception of the Annual Accounting Scheme, returns must be filed and outstanding tax paid no less than 1 calendar month and 7 days from the last day of the accounting period.
If a trader doesn’t pay their tax bill on time, the outstanding balance (including any fines) will begin to accrue daily interest charged on top at the Bank of England rate plus 2.5%. They won’t be charged more if they pay off the outstanding tax bill within 15 days.
However, a percentage of the late payment owed will be charged as a penalty, as follows:
- 2% of the outstanding amount at day 15
plus 4% of the original tax bill from days 16–30 - Previous penalty plus 2% of the outstanding amount at day 30 from day 31 onward
Of course, interest will be charged until the total is cleared, so it can be easy for financial penalties to rack up over time if a trader doesn’t stay on top of their tax returns and payments.
Get help with late VAT penalties
More information about the new VAT penalty system can be found on the government website. The regime shouldn’t worry you too much if it’s rare for you to miss a deadline, but for traders who consistently submit tax returns late or miss payment deadlines, these mistakes can be costly.
Avoiding tallying up penalty points and fines can be difficult without careful planning. It’s important to stay on top of your online VAT account, and take steps to address penalties as quickly as possible. Depending on your circumstances, you may be able to appeal against a VAT penalty.
If you need help with VAT management, including dealing with penalties, enquiries, and appeals, our accountants in Barnsley can assist you. Browse our website to learn more about what we do and contact GBAC to get started with our tax consultants.