Delay to New HMRC VAT Penalty Charges

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HMRC have announced plans to delay the introduction of new penalties for the late submission of VAT returns, due to apply from 1^st April 2022 to 1^st January 2023. These changes will replace the current default surcharge system that applies to the late submission and payment of VAT returns.

The new late submission penalties will affect businesses who fail to meet their obligations to provide returns and other information requested by HMRC on time. There will no longer be an automatic financial penalty, instead a points based system will be used before a financial penalty is levied.

This new regime is designed to be proportionate, penalising businesses who persistently miss their submission obligations, rather than those who make occasional mistakes. This is good news for businesses who make occasional late returns or payments, as the penalties in these circumstances will be relatively small. However the new system could result in high penalties levied on businesses that are regularly more than a month late in paying the VAT they owe to HMRC.

The new system will also mean that repayment traders who do not submit their returns on time will receive a penalty when the points threshold is breached. Under the current default surcharge system the surcharge was based as a percentage of the VAT liability and therefore a penalty was not due for a repayment return being submitted late.

The new system will result in a two-step process for businesses who fail to submit their VAT returns on time:

1. A business will receive a single point every time a submission deadline is missed, and will be notified of this by HMRC.
2. At a set threshold of points, a financial penalty of £200 will be charged.

When a taxpayer has reached the relevant threshold a penalty will be charged for that failure and every subsequent failure to make a submission on time, but their points total will not increase. Points will have a lifetime of 2 years, after which they will expire. However points will not expire when a business is at the penalty threshold, to ensure a period of compliance is met to reset the points.

To avoid a penalty businesses will need to either pay the VAT due or approach HMRC to agree a ‘time to pay’ arrangement. Interest will also be charged from the due date until the date full payment of that tax is received by HMRC.