New penalty rules for VAT – what you need to know

HMRC has recently introduced new penalty rules for VAT accounting periods starting on or after 1st January 2023. The VAT default surcharge has been replaced by a penalty point system. What does this mean for you? rradar’s tax expert, Steve Tetley, explains.

How does the new scheme work?

If a VAT return is submitted late, penalty points will be applied. Points will also be awarded for subsequent late filings and once a threshold is met, a £200 penalty will be applied.

Penalty points are removed if the VAT returns for the previous 24 months have been filed on time.

What are the penalty thresholds?

The penalty point threshold is set by your accounting period and is the maximum points you can receive. If you file annual VAT returns, the threshold is 2 points. It is 4 for quarterly filers and 5 for monthly returns.

This is best explained using an example. A VAT registered trader who files quarterly returns has submitted 3 previous returns late (within the past 18 months), so has accumulated 3 penalty points. The trader submits their next return late, has reached the penalty point threshold and receives a £200 penalty.

Which returns are not affected?

The penalty rules above do not apply to your:

• first VAT return if you are newly VAT registered

• final VAT return after you cancel your VAT registration

• one-off returns that cover a period other than a month, quarter or year.

Can I appeal a penalty?

Yes, you can appeal against a penalty or ask for a review of the decision. Generally, you need a reasonable excuse for HMRC to cancel a penalty.

Does this just apply to VAT?

At the moment it does, but the intention is that a similar system will be adopted for other taxes, such as income tax.

Where can I get further help?

If you find yourselves subject to a HMRC penalty, then please get in touch with the team at rradar who will be happy to discuss how we can help. Our team has years of experience with HMRC so we can work with you to achieve the best possible outcome. Contact Steve.Tetley@rradar.com (01482 296923) for more information.