New penalty regime for VAT and Income Tax Self-Assessment

Historically, VAT surcharges for late submission of VAT returns have been criticised for being disproportionate, and out of line with similar charges for other taxes.

The surcharge level is currently the same (a fixed percentage of the VAT due, from 2% up to 15%) regardless of whether the VAT was paid 1 day or 1 year late.

HMRC are attempting to make the system fairer with a new regime.

What will the new late payment penalties regime look like?

Under the new regime:

  • Penalties will be points-based, with a financial penalty of £200 being issued for every missed submission on and after a relevant points threshold is reached
  • Penalties will be proportionate to the amount of tax owed and how the late payment is
  • No penalty will be chargeable on tax paid up to 15 days after the due date
  • A 2% penalty will be chargeable on tax paid between 16 and 30 days after the due date increasing to a 4% penalty chargeable on tax unpaid after 30 days
  • A further 4% annual penalty rate will be chargeable on outstanding tax due after 30 days

When will the reforms happen?

The reforms come into effect:

  • For VAT taxpayers from periods starting on or after 1 April 2022
  • For taxpayers in income tax self-assessment, from accounting periods beginning on or after 6 April 2023 for taxpayers with business or property income over £10,000 per year (that is, taxpayers who are required to submit digital quarterly updates through Making Tax Digital for ITSA)
  • For all other income tax self-assessment taxpayers, from accounting periods beginning on or after 6 April 2024

The reforms, shaping a fairer system with reduced surcharge penalty percentages will be welcome to both taxpayers and advisers.   With any new system, there are likely to be teething problems and businesses are advised to take advice if surcharges have been issued incorrectly.

Finally, it’s worth a reminder that under both the current and new regime, businesses that have received surcharges may be able to appeal and our team can help with this.

If you need our advice please get in touch at hello@chw-accounting.co.uk

 


This article is for general guidance only. It provides an outline, and may not include points which are important to your situation. You should not depend on this blog without taking advice based on the full facts of your case. The information given was correct at the time of publication.

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