January 9 2023

United Kingdom Introduces New VAT Penalty Regime

Source: IBFD Tax Research Platform News

The United Kingdom's tax authority, His Majesty's Revenue and Customs (HMRC), noted that a new regime for VAT penalties applies from 1 January 2023.

The implementation of the new rules had been postponed from April 2022. Now, for VAT accounting periods starting on or after 1 January 2023, a new points-based penalty system will apply for late returns and payments.

A penalty point will be given for every late return and a GBP 200 penalty will be levied once the penalty points threshold is reached and, again, for every subsequent late submission while at the threshold.

The penalty point threshold is set by the accounting period as follows:

Accounting period

Penalty points threshold

Annually 2
Quarterly 4
Monthly 5

Generally, penalty points will be removed after a 24-month period of compliance.

Penalties will also apply to late payment. A charge of 2% will apply for VAT outstanding after 15 days and again after 30 days. A further penalty will then be applied at a rate of 4% a year from the 31st day until payment is made. Penalties can be avoided by agreeing a time-to-pay arrangement with HMRC.

To allow a period of familiarization with the new system, HMRC will not charge a first late payment penalty until after 31 December 2023 as long as full payment or a time-to-pay arrangement is made within 30 days of the payment due date.

Finally, interest will be charged on the late payment of VAT at the Bank of England base rate plus 2.5%.