There was little in yesterday's Budget regarding VAT, yet buried in the vast number of documents issued by the Government following the Chancellor's speech is a new penalty regime for the late filing of VAT returns.
From 1 April 2022, all VAT registered businesses are required to file VAT returns via online accounting software as part of the Government's Making Tax Digital programme.
From 1 April 2022, late filings will see businesses awarded 'points'. And unlike the words of the late great Bruce Forsyth, these points most definitely do not 'mean prizes'.
For each late VAT return, a business will receive a point. When a business reaches the points threshold it will incur a £200 fixed penalty for that return and any subsequent late returns.
Points drop off after a two-year window and can be reset to zero if the following two tests are met:
- A period of compliance, meeting all submission obligations on time for the period of compliance - see table below; and
- The taxpayer submitted all submissions which were due within the preceding 24 months. It does not matter whether these submissions were initially late.
Points thresholds
- Annual return - 2 points
- Quarterly returns - 4 points
- Monthly returns - 5 points
Reset periods
- Annual returns - 24 months
- Quarterly returns - 12 months
- Monthly returns - 6 months
Time limits for HMRC to levy a point are
- Annual returns - 48 weeks
- Quarterly - 11 weeks
- Monthly returns - 2 weeks
Late payment penalties
In addition to the above, late payments of VAT may also attract penalties and/or interest. The following penalties will apply:
Businesses that make a payment up to 15 days after due date will receive no penalty.
When payment is made between 16 and 30 days after due date, a penalty equivalent to 2% of tax due is levied.
At 30 days, the penalty is 2% of tax outstanding at 15 days plus 2% of tax outstanding at 30 days. Most amounts will be due at 4% overall at this point.
After 31 days, 4% per annum calculated daily until the tax is paid.
On top of those penalties, interest will be charged at HMRC's rates from the due date to the date of payment.
What does this mean for businesses?
Until now, the default surcharge only applied if the payment was received late. Even then, taxpayers had one return in a twelve month period where no penalty would apply . From 1 April 2022, businesses that accrue points for late filings can expect a fixed £200 fine for each late return once the points threshold has been breached. If 4 quarterly returns are submitted late in a two year period, penalties will start to apply and, at £200 per quarterly return submitted late, this can soon rack up to a sizeable cost!
For example, business A submits its 06/2022 VAT return at 00.01 on 8 August 2021. It will accrue one penalty point. It submits its 09/2022 VAT return on 8 November 2022 and accrues another penalty point. The December 2022 and March 2022 returns are also submitted late. As of 8 February 2023, A has racked up its 4 penalty points and, if the June 2023 return is submitted late, it will receive a £200 fine.
In addition, if the payment is also late, if the VAT liability is not paid within 15 days of the due date, 2% of the VAT due on the return will be assessed as a penalty. If nothing is paid by day 30, 4% will be levied and after 31 days of non-payment, 4% per year, calculated daily will be added to the tax debt.
Even if the liability is paid by the 15 day window, interest will be due on the amount and that will continue until the debt is paid.
Businesses that make payment up to 15 days after due date will receive no penalty.
The worrying thing for businesses is that with the smaller ones expected to file returns under MTD, there may be delays due to HMRC's archaic rules on talking to agents if the taxpayer is unable to access its business tax account to operate MTD!
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
