If you are a VAT-registered business in the UK, you may have already received a warning from the HMRC about new VAT penalties. Here, we are taking a closer look at what these penalties are, when they come into effect, and how you can avoid them.

What are the new VAT penalties?

The new VAT penalties are designed to be ‘fairer and more proportionate’ for businesses who submit their VAT returns or pay their VAT late. The penalties replace the VAT default surcharge, which was seen by many as overly punitive.

Under the new system, businesses will face two types of penalties: late payment penalties and points-based late submission penalties. Late payment penalties will be charged when a business fails to pay their VAT on time, while points-based late submission penalties will be charged when a business fails to submit their VAT return on time.

Both types of penalties will be calculated based on the number of defaults a business has within a certain time period. For late payment penalties, the number of defaults is based on the number of VAT payments a business misses. For points-based late submission penalties, the number of defaults is based on the number of VAT returns a business submits late.

When do the new VAT penalties come into effect?

The new VAT penalties came into effect on 1 January 2023. The first monthly returns and payments affected by the penalties are due by 7 March 2023.

It is worth noting that the penalties only apply to accounting periods that start after 1 January 2023. If your accounting period started before this date, you will still be subject to the old VAT default surcharge system.

Who do the new VAT penalties apply to?

The new VAT penalties apply to all VAT-registered businesses, regardless of their size or turnover. This includes businesses that submit nil returns and repayment returns.

What changes have been made to how interest is calculated?

In addition to the new VAT penalties, the HMRC has made changes to how interest is calculated on VAT payments. Under the old system, interest was charged on a daily basis, which could result in significant charges for businesses that paid their VAT late.

If you would like help with VAT for your business, get in touch today, we are more than happy to assist with any VAT related queries you have.