Introduction:
As of the beginning of this year, HMRC has implemented a revamped penalty regime for VAT registered entities who encounter issues with filing and/or paying their returns on time. Understanding the intricacies of this new system is crucial for businesses to stay compliant and avoid unnecessary penalties. In this blog post, we’ll break down the key components of the system in a professional yet accessible manner.
Late Filing Penalties:
The new system introduces two types of penalties and interest, with a focus on late filing penalties. A late filing penalty is triggered based on the accumulation of penalty points. Each time a return is submitted late, a penalty point is incurred. Once a specific threshold is reached (4 points for quarterly returns, 5 for monthly returns, and 2 for annual returns), a flat penalty of £200 is imposed for every subsequent late VAT return filing.
Notably, penalty points are assigned even for nil or repayment returns, a departure from the previous system where no penalty would be incurred in such instances.
Resetting Business Points Balance:
To reset the penalty points balance to zero, all VAT returns for the preceding 24 months must be up to date. Moreover, consistent on-time submissions for 12 months (for quarterly returns), six months (for monthly returns), or 24 months (for annual returns) are required.
Late Payment Penalties:
Late payment penalties are a separate facet of the system. No penalty is applied if payment is made within 14 days of the due date. Subsequently, penalties are incurred as follows:
- 2% of outstanding VAT at day 15
- An additional 2% at day 30
- Daily penalties at a rate of 4% per annum from day 31 until the full VAT liability is settled
A crucial point to note is that contacting HMRC by day 15 to arrange a payment arrangement can exempt a business from penalties, provided the agreed-upon conditions are adhered to.
Exemptions and Exceptions:
HMRC has specified certain scenarios exempt from late submission penalties, including the first VAT return for newly registered businesses, the final VAT return after cancellation of VAT registration, and one-off returns covering periods other than a month, quarter, or year. However, late payment submission penalties can now apply to repayment and nil returns if filed late.
Interest Charges:
Interest is levied on late payments from the due date to the payment date at the rate of the Bank of England base rate plus 2.5%.
Repayment Supplement Changes:
For businesses in a repayment position, HMRC will no longer make a repayment supplement payment if the repayment is not made within specified deadlines.
Conclusion:
In conclusion, adhering to timely filing and payment is the most effective way to avoid penalties. However, if a business faces challenges, proactive communication with HMRC and seeking advice are crucial steps in managing the situation and minimizing penalties as much as possible. Stay informed and stay compliant to ensure a smooth journey through HMRC’s new VAT penalty system.