The New VAT Penalty System: What’s the Deal?

If you’re running a VAT-registered business, you’ve probably heard about HMRC shaking things up with a new VAT penalty system which started from 1st January 2023.  In this blog we are exploring all the need-to-knows so you can ensure you can avoid getting caught out with a penalty.

The Lowdown on Points

First off, the old VAT default surcharge is out, and a points-based system is in. Here’s the gist:

  • Late Submission? You get a point. It’s like a yellow card in football but for taxes.
  • Too Many Points? You’ll get hit with a £200 fine. The number of points that trigger this depends on how often you file VAT returns:
  • Annually: 2 points
  • Quarterly: 4 points
  • Monthly: 5 points
Wiping the Slate Clean

Got some points racked up? They won’t stick around forever if you get your act together. You’ll need a “good behaviour” streak to reset those points:

  • Annual VAT returns: 24 months
  • Quarterly returns: 12 months
  • Monthly returns: 6 months
What About Late Payments?

Ah, the money part. If you’re late on payments, here’s what you’re looking at:

  • Up to 15 days late: No worries, no penalty.
  • 16 to 30 days late: A 2% penalty on what you owe.
  • More than 31 days late: A 4% penalty plus a daily rate of 4% per year until you settle up.
How to Dodge Those Penalties
  1. Go Direct Debit: It’s like setting a reminder, but for your money. HMRC takes what they’re owed, and you don’t have to lift a finger.
  2. Time to Pay: Can’t pay in full? Chat with HMRC about a payment plan. You’ll still get charged interest, but at least the penalty clock stops ticking.
  3. Appeal: If you think you’ve got a solid reason for being late, you can appeal within 30 days.

The new VAT penalty system is all about being fair. Occasional slip-ups won’t cost you as much, but if you make a habit of it, HMRC will have their eye on you. As always, the best way to steer clear of trouble is to file and pay on time.

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