VAT Return Penalty

HMRC have announced that from 1 January 2023, any taxpayer that submits a VAT return late (including nil payment returns) will receive penalty points. After a certain threshold, taxpayers that incur too many penalty points will be subject to a £200 fine. HMRC have also confirmed that the way that interest is charged on late VAT Returns has changed.

VAT Returns must be sent by the deadline for the accounting period. Every late submission results in a penalty point. The penalty point threshold, after which a £200 penalty is issued, is set by the taxpayer’s accounting period, as follows.

After the taxpayer’s penalty point threshold is reached, the taxpayer receives a £200 penalty. Any further late submissions will also be subject to a £200 penalty.

Companies that have an agreement with HMRC to use non-standard accounting periods, are subject to different rules.

When a taxpayer takes over a VAT-registered business as a ‘going concern’, none of the penalty points of the business in question will be transferred to the taxpayer’s VAT registration number.

The rules for penalties for late submissions of VAT returns are not applicable for:

• The first VAT return for newly VAT registered taxpayers
• The last VAT return following the cancellation of VAT registration; and
• One-off returns for periods other than a month, quarter or year.

HMRC have also announced that VAT-registered entities will be charged late payment interest from when their payment is overdue until it is fully paid. This rate is calculated at the Bank of England base rate plus 2.5%.