Update: HMRC announced on 13 January 2022 that the changes for VAT businesses will now be introduced nine months later than planned, on 1 January 2023. The delay is to allow HMRC time to ‘ensure the IT changes necessary for the new penalties and interest charges can be introduced as effectively as possible, ensuring a high standard of service to customers.
Following 3 consultations with taxpayers and, in a bid to encourage compliance, HMRC are reforming their interest and penalties regime to harmonise this across different taxes.
For VAT taxpayers, this means a new penalty regime in respect of VAT return periods beginning on or after 1 April 2022.
Whilst previously, a late VAT return submission or payment would result in a Default Surcharge Notice, along with a penalty of either 2%, 5%, 10% or 15% of the tax due, dependent on the number of late submissions or payments in the previous 12 months, this process will be changed to the new regime for all accounting periods on or after 1 April 2022, and will have separate penalties for submissions and payments.
Late submission penalties
The new regime for VAT return submissions will be points based. When a taxpayer misses a submission deadline, they will incur a point. Once a points threshold has been reached, the taxpayer becomes liable to a set £200 penalty. The table below details the different point thresholds, as these are dependent on the VAT return submission frequency:
If submission deadlines are continually missed after reaching the points threshold, the taxpayer will become liable for a further fixed rate penalty for each additional missed return deadline.
There will still be the right of appeal available to taxpayers, against both points and penalties and, where there is a reasonable excuse for the missed submission, they will not be charged the point/penalty.
Late payment penalties
The new late payment penalty will consist of 2 separate charges. The first charge will become payable 30 days after the payment due date and will be based on a set percentage of the balance outstanding.
There will be no penalty if the taxpayer pays the tax late but within 15 days of the due date, or where they agree a time to pay arrangement with HMRC in this time.
If a time to pay is agreed, the penalty will stop accruing from the date the taxpayer proposes it.
In addition to these penalties, late payment interest will be charged to the taxpayer from the date that payment was due, until the date the payment is received.
HMRC have said that there will be a ‘Period of Familiarisation’ to allow taxpayers time to get used to the changes. This will apply for the first year of the new regime, from 1 April 2022 to 31 March 2023. During this time HMRC won’t levy a late payment penalty if the tax is paid in full within 30 days of the payment due date. However, interest will still be charged on any outstanding balance from the payment due date + 1 day until the balance is paid in full, during this period of familiarisation.
Both points and penalties can be appealed, and we understand that HMRC will also have discretion not to apply a point or penalty in certain circumstances. It remains to be seen how often this discretion might be applied.
It is hoped that this new approach to late submission and payment penalties will allow normally compliant businesses to avoid penalties where there is only an occasional late submission or payment, whilst still penalising those taxpayers who routinely default.
If you would like further information about the new regime or have any questions on relation to this or any other VAT matters, please get in touch with our VAT experts or speak to your usual French Duncan contact.