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How HMRC now handle penalties for late VAT returns and payments

Stressed Woman Has A Penalty For Late VAT Returns And Payments
Date Published: 30/05/2023

Fines for late VAT returns and payments

As of January 2023 companies in the UK can now get penalty points if they submit their VAT Returns late, even including nil payment returns.

These rules apply to all VAT accounting periods which started on or after 1st January 2023, with late submission penalties being applied if companies submit a VAT Return late.

The older VAT default surcharge system, which pertained to VAT accounting periods starting up to the end of December 2022, is being updated to a new penalty points system by HMRC. The penalties apply to returns which are submitted late, as well as VAT which is paid after it is due. Penalty points are totalled up and can lead to a £200 financial penalty.

HMRC also provides guidance on how to remove penalty points for submitting a VAT Return late and you can also check when individual penalty points expire, in order to avoid a further £200 penalty.

Company directors should make themselves aware of their obligations with regards to their tax liabilities, whether VAT, PAYE, or Corporation Tax – or they should at least put qualified accountants in charge of ensuring obligations are met. Whether it is an external qualified accountancy firm, or an internal accounts department dealing with your tax affairs, ultimately the responsibility sits with you as a company director to submit returns on time and keep up to date with payments. 

If you check the relevant box within your company’s online account with HMRC they can send you or your accountant VAT filing reminders. Moreover, if you or your accountant submit online VAT returns the deadline for your return is clearly shown on screen. The due date is shown on the VAT Return and is usually one calendar month following the conclusion of the accounting period to which the return is applicable to.

The new penalty point system is explained clearly by HMRC here, with differing points thresholds being applied to differing accounting periods, e.g. monthly, quarterly and annually.  

For monthly accounting periods the maximum penalty points threshold is five. For quarterly periods it is four and for annual periods it is just two.

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Lets take a look at an example to see how the penalty point system would apply to a business which makes monthly returns, whereby their penalty point threshold is five.

On four previous occasions they submitted returns late, so they have already accumulated four penalty points. They then submit another VAT return beyond the due date and receive a fifth penalty point, so they breach the penalty point threshold and are given a £200 penalty.

The business then get their next VAT return in on time, so they remain at the threshold of five penalty points, but would not get another penalty of £200. However, they then submit the next VAT return late and as they’re still on the five penalty point threshold they will get another £200 penalty.

For companies that have made an agreement with HMRC to use a non-standard accounting period they should be aware of which rules apply.

For an accounting period over 20 weeks long, the annual rules apply, meaning the penalty points threshold is two. If the accounting period is longer than eight weeks but shorter than 20 weeks the quarterly rules apply (penalty points threshold is four), whereas for an accounting period of eight weeks or shorter the monthly rules apply, so the penalty points threshold is five.

If your company if facing penalties for late submission of tax returns, you don’t have sufficient funds to pay a VAT or Corporation tax bill, you’re behind with PAYE payments or your company’s financial situation is more severe Begbies Traynor can help.

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We can negotiate with HMRC to give you more time to meet your tax liabilities, whether VAT, Corporation Tax or PAYE. Time to Pay arrangements can be valuable in cases where default, or additional defaults look like a possibility.

Defaulting on any tax liability indicates to HMRC that you could be approaching insolvency and they are known to be relentless in the pursuit of tax debt.

At Begbies Traynor we are licensed Insolvency Practitioners operating from an extensive network of offices throughout the UK. We offer same-day free of charge consultation to company directors whose businesses are in financial difficulty and have a strong track record of finding suitable solutions.

About The Author

Meet the Team

Jonathan was a founding director of Cooper Williamson which was acquired by Begbies Traynor in October 2013. 

Jonathan was involved in the inception and continued with the development of the "Real Business Rescue" website, which provides advice and assistance for the directors of limited companies which are experiencing various degrees of financial distress throughout the UK. 

Jonathan is a member of the Insolvency Practitioners Association MIPA and is a Member of The Association of Business Recovery Professionals MABRP.

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