Changes to the VAT penalty regime are due to come into effect in 2023 as the government looks to harmonise penalties across all forms of taxation.
The changes, from 1 January 2023, will include:
- late submission penalties will be calculated using a points-based system, to target repeated non-compliance;
- the penalty for late filing a return will be £200 maximum, substantially lower than the maximum late filing penalty under existing regimes;
- the initial late payment penalty applies after 15 days, halving the time to make payment without incurring a penalty;
- HMRC has confirmed that the slate will be ‘wiped clean’ – businesses within the existing VAT default surcharge regime will start from zero points.
Steven Porter, a Partner at law firm Pinsent Masons, said: “The regime is a ‘points-based system’ along similar lines to driving penalties, so that one-off mistakes are not penalised but repeated non-compliance is.
“A taxpayer that fails to submit a return on time accumulates one point for each missed deadline. When the taxpayer meets the specified threshold (which varies depending on how often they need to submit a return), a penalty of £200 arises for that missed deadline and each subsequent failure to make a submission on time.”
He added: “In order to encourage future compliance, points expire after a period. It is more difficult to achieve expiry of points if the business has already reached the threshold.
“If a taxpayer has not reached threshold of points, a given point will expire after two years (calculated from the beginning of the month after the point-triggering failure). For example, if a taxpayer has failed to submit a quarterly return in April 2023, the point will expire in May 2025.”
A similar system will come into effect for income taxpayers from 2024.
“The regime is a ‘points-based system’ along similar lines to driving penalties, so that one-off mistakes are not penalised but repeated non-compliance is.
