New VAT penalties were applicable from 1 January 2023 to VAT Returns for an accounting period starting on or after 1 January 2023.

Per the new rules, VAT default surcharge is being replaced by new penalties for returns that are submitted late and VAT which is paid late.

The new VAT penalties affect everyone who submits VAT Returns, including those who submit nil or repayment returns.

For VAT accounting periods starting on or before 31 December 2022, the VAT default surcharge should still apply.

How are the new penalties going to work?

You must send a VAT Return by the deadline for your accounting period.

Your accounting period is when you need to send a return to HMRC, for example, quarterly, monthly, or annually.

Under the New VAT penalties, late submission penalties will work on a points-based system.

For each late submission, you will receive a penalty point.

Once you have reached a penalty point threshold, you will receive a £200 penalty fine. A further £200 penalty for each subsequent late submission will be issued while you are at the threshold.

Penalty point threshold

The new VAT penalties stipulate that the penalty point threshold is set by your accounting period.

The threshold is the maximum number of points you can receive.

Accounting Period           Penalty Points Threshold             Period of Compliance

Annually                              2                                                          24 months

Quarterly                            4                                                          12 months

Monthly                              5                                                          6 months

For example, if a company submitted their VAT Return quarterly, their penalty point threshold would be 4.

They submitted their 3 previous returns late and already have 3 penalty points because of this.

The company submit their next return late and receive a fourth penalty point, pushing them up to the penalty point threshold.

As a result of this, they receive a £200 penalty as per the new changes.

The company submits their next return on time. They remain at the threshold of 4 penalty points but do not receive a £200 penalty.

However, once again, the company submits their next return late. As they are still at the penalty point threshold of 4 points, another £200 penalty is issued.

VAT returns

In line with the new changes, the late submission penalty rules do not apply in the following circumstances:

  1. It is your first VAT return after being newly VAT registered
  2. It is your final VAT return after you cancel your registration
  3. It is a one-off return that covers a period other than a month, quarter, or year

For example, you might make a one-off return covering a four-month period because you decided to change from submitting quarterly to annually.

Can I appeal a point or financial penalty?

If you receive a late submission penalty point or a £200 penalty, HMRC will inform you via a penalty decision letter. The letter will offer the option of a review with HMRC.

You can find out how to appeal against a penalty here.

Following a successful review or appeal to the tax tribunal of a penalty, your penalty may be cancelled or amended providing you have a reasonable excuse.

The details of your penalties can be checked in your online VAT account, and you can request a review through the same platform.

How Williamson & Croft can help

Our team’s level of expertise and years of experience in VAT makes us confident we can help your business with a whole host of solutions.

From accounting, tax and professional advice right the way through to R&D tax credits and audits, we can help you in all manner of ways.

Be sure to get in touch with us today on 0161 399 0121 or drop us an email to find out more.