VAT Penalty & Interest Regime Update

From April 2022 there will be a new penalty regime for late payment for VAT. As part of this reform, interest charges and repayment interest will be harmonised to bring VAT in line with other tax regimes. 

 

There is currently no standalone late submission penalty for VAT. Instead, the Default Surcharge applies, which is a combined late submission and late payment sanction. On the first late return, the taxpayer gets a Surcharge Liability Notice (SLN) which lasts for a year. If further defaults occur, the SLN period extends and penalties of 2% then 5% are applied to subsequent defaults, rising to 15% of the tax due. The new penalty regime means that for the first time there will be a specific penalty for late filing, although only for repeated late filing. 

 

The new regime will be a ‘points-based’ system (driving licence style) for late filing, which replaces the default surcharge regime for VAT. The new system is designed to crackdown on those who frequently file late, but be more lenient for those who make an occasional slip-up. It will apply to VAT returns and annual return filings and quarterly updates under MTD. For VAT registered entities this will be a complete change from the default surcharge which has often been criticised for penalising taxpayers unfairly. 

 

Points will be received for each late filing, with a fixed financial penalty of £200 arising when the threshold is reached. The points threshold depends on the taxpayer’s submission frequency: annually = two points quarterly = four points, monthly = five points. Taxpayers will continue to receive a penalty (set at the same flat rate) for each subsequent late filing after the first which attracts a penalty. Points will expire after 24 months if the taxpayer remains under the threshold. 

 

If a penalty is imposed, points will reset to zero only if the taxpayer is compliant for a certain amount of time based on their submission frequency: annually = 24 months, quarterly = 12 months, monthly = six months. 

 

If you would like anymore information on this topic, feel free to contact Evans & Co Accountants Ltd at support@evansaccountantsbarnstaple.co.uk. 

 

Thank Evans for that!