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UK VAT penalty regime reform delayed till 1 Jan 2023 due to IT issues

Government delays from April 2022 to Jan 2023 new Value Added Tax penalty regime due to IT issues

Reforms to align the VAT penalty regime to that of other major taxes has today been delayed nine months until 1 January 2023. This is due to uncompleted IT upgrades.

Simpler, fairer VAT fines

The UK’s HMRC is introducing a new Value Added Tax penalty and interest regime for late returns and payments. This was included in the recent government budget. The aim of the reforms is to reduce penalties on taxpayers with a good compliance record compared to frequent offenders. It will also harmonise the rules between VAT and income tax self-assessment to make the entire regime more coherent.

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The new system will replace the existing single default surcharge on both late returns and penalties. This system can lead to disproportionate charges for returns in just a few days late, which has clogged up tribunal appeals for HMRC.  HMRC is now looking to remedy these two problems. Our VAT Filer can accurately populate any UK VAT returns with verified data from our VAT Calculator or VAT Auditor services.

The new rules come into force from 1 January 2023 for VAT returns starting on or after that date. They are divided as follows:

  • Late VAT return filing:

    A late return will result in a single penalty point being awarded. Once the accumulated number of late return penalty points is reached, a £200 fine is due. For most quarterly filers, this will be 4 penalty points; or 5 penalty points for monthly returns. They will role over for 24 months. A £200 penalty is levied when accumulated points are reached.

  • Late VAT due penalty

    Penalty based on amount and time payment is overdue. 2% penalties start after 15 days of overdue date. Then 4% after 30 days. At the same time, daily accrued interest will start after 30 days. At the same time, HMRC is obliged to pay interest on overdue refunds.

  • Late payment interest –

This is charged at 2.5% above the UK’s Bank of England base rate from the date the VAT is due.

Whilst a good and fairer system for most taxpayers who make the occasional error, the new system will lead to fast accumulating fines and interest for anyone in real cashflow difficulties, particularly after 30 days. It will be still possible to contact HMRC to strike a compromise agreement.

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