On point: HMRC’s new way of dealing with late VAT
There's a new penalty regime for late submission of VAT returns. Accounting Technician Jessica Maddams explains the points system and shows you how to avoid getting caught out and ending up in hot water.
The way in which HMRC charges penalties and interest for VAT has seen no changes for quite some time. Until now. These changes affect any return for an accounting period starting on or after 1st January 2023.
Late Filing
A new points-based system in place for businesses that report their VAT late. This applies even if you are submitting a nil return or a repayment return.
Each return must be submitted by the relevant deadline date for the VAT period in question, and any late submissions will incur a penalty point. When you reach a penalty point threshold, you will receive a £200 fine. Any other returns which are subsequently submitted late while you're at the points threshold will also incur a £200 penalty.
The set threshold depends on the regularity of submission due, so if you submit your VAT returns quarterly, the points threshold is four. For annual submissions it's two. And for monthly submissions, it's five.
Example:
You submit your VAT returns quarterly and your last three returns have been filed late with HMRC. Any returns filed late after the third one will now incur a £200 penalty as the threshold of four points will have been reached. You remain at the threshold even if the next VAT return is filed on time, so any subsequent late-filed returns will still incur the £200 penalty.
When do the points expire?
Well, it depends on the period the VAT fell due. If the deadline for your return was the last day of a month, the penalty point expires on the last day of the month 25 months later. If the deadline wasn't the last day of the month, the expiry date is the last day of the month 24 months later.
If you are at the points threshold and would like to remove them, you must meet the conditions below set out by HMRC:
- complete a period of compliance, submitting all returns by the deadline
- submit all outstanding returns for the previous 24 months
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Accounting period
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Period of compliance
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Return to make
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Annual
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24 months
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2
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Quarterly
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12 months
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4
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Monthly
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6 months
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6
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Returns you'll need to make
Depending on your accounting period, you'll be expected to submit these VAT Returns on time during a period of compliance.
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Late payment interest
The interest is calculated starting from the first day your payment is overdue until the debt is paid in full. This method replaces the previous VAT default surcharge.
On top of the interest, you will incur a late payment penalty if you are over 15 days late in paying.
The interest is calculated using the Bank of England base rate plus 2.5%. The following is an example of the calculations by HMRC:
D is VAT-registered and must submit and pay quarterly VAT Returns.
For D's accounting period running from 1 October 2023 to 31 December 2023, the deadline to submit this return and pay the VAT in full is 7 February 2024.
D submitted the return on time on 7 February 2024, showing £8,340 VAT owed. D did not make the payment until 14 February 2024, a week later than the payment due date.
D is charged late payment interest on £8,340 for seven days, from 8 February 2024 up to and including 14 February 2024.
For this example, the Bank of England base rate is 3.5% making the repayment interest rate 6%.
Late payment interest for seven days is £9.60
(£8,340 x 6% x 7/365 days) = £9.60.
Page Kirk can help you stay out of any points threshold and avoid HMRC's penalties and interest by working along side you and your business to keep things on track. We have an experienced team of accountants who specialise in VAT and are here to help should you need assistance. Don't hesitate to get in touch with us by calling 0115 955 5500 or emailing enquiries@pagekirk.co.uk.