New VAT Penalties from 1 January 2023 – What Are the Changes?

New VAT penalties from 1 Jan 2023 will be applicable to VAT Returns for an accounting period starting on or after 1 January 2023.

As per the new VAT penalties from 1 Jan 2023, the VAT default surcharge is being replaced by new penalties for returns that are submitted late and VAT which is paid late. The way interest is charged is also changing.

New VAT penalties from 1 Jan 2023 affect everyone who submits VAT Returns, including a nil or repayment return. For VAT accounting periods starting on or before 31 December 2022, read the guidance about the VAT default surcharge.

New VAT Penalties from 1 January 2023 – What Are the Changes?

How do late submission penalties work?

You must send a VAT Return by the deadline for your accounting period. Your accounting period is when you need to send a return to HMRC, for example, quarterly.

Under the New VAT penalties from 1 Jan 2023, late submission penalties work on a points-based system.

For each return you submit late, you will receive a penalty point.

Once you’ve reached a penalty point threshold, you’ll receive a £200 penalty and a further £200 penalty for each subsequent late submission while you’re at the threshold.

The penalty point threshold for your accounting period

New VAT penalties from 1 Jan 2023 stipulate that the penalty point threshold is set by your accounting period. The threshold is the maximum points you can receive.

Penalty example for a business making quarterly returns

A company submits their VAT Return quarterly. This means their penalty point threshold is 4.

They already have 3 penalty points because they submitted 3 previous returns late.

They submit their next return late and get a fourth penalty point. Because they’ve reached the penalty point threshold, they receive a £200 penalty as per the changes introduced by new VAT penalties from 1 Jan 2023.

The company submits their next return on time. They stay at the threshold of 4 penalty points but do not get a £200 penalty.

The company submits their next return late. As they’re still at the penalty point threshold of 4 points, they receive another £200 penalty.

Find out more from ‘Overview of the new VAT late submission, late payment penalties and interest changes on Videos and webinars for VAT.

Find out how to remove penalty points

How changes to your business affect penalty points

Changing your accounting period

If you’ve agreed with HMRC to change how often you submit returns, HMRC will adjust your threshold and penalty points.

This is how HMRC will adjust your penalty points threshold:

If you have existing penalty points, this is how HMRC will adjust your penalty points:

When you change your accounting period:

• – HMRC will set your penalty points to zero if the adjustment gives you a minus figure
• – HMRC will not make an adjustment if you have zero points

You cannot appeal adjustments to your penalty points.

When you change from a non-standard accounting period to the equivalent standard period, your points will not change.

Taking over a business

If you take over a VAT-registered business as a ‘going concern’ any penalty points built-up by the business will not be transferred to your VAT registration number. This will be the case even if the VAT registration number is transferred from the previous owner to yourself.

VAT Returns not affected

As per the changes introduced by new VAT penalties from 1 Jan 2023,  the late submission penalty rules do not apply to your:

• – first VAT return if you’re 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

For example, you might make a one-off return covering a four-month period because you changed from submitting quarterly to annually.

Appeal a point or a financial penalty

If you receive a late submission penalty point or a £200 penalty as per new VAT penalties from 1 Jan 2023, HMRC will tell you in a penalty decision letter. The letter will offer you a review with HMRC.

Find out how and when you can appeal against a penalty.

You can choose a review or appeal to the tax tribunal.

Your penalty may be cancelled or amended if you have a reasonable excuse.

Check and appeal penalties online

You can check the details of penalties in your VAT online account and ask for a review through your online account.

New VAT Penalties from 1 January 2023 – How can MCL Accountants help?

Contact MCL Accountants on 01702 593 029 if you have any queries on New VAT penalties from 1 Jan 2023 or if you need any assistance with the preparation and submission of your business accounts or self-assessment tax returns to HMRC.

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Ishan Madan( CHARTERED CERTIFIED ACCOUNTANT (FCCA) )

Ishan provides financial management, taxation and transactional advice to business entities of all sizes. His expert areas include statutory compliance, business taxation, personal tax & transactional processing and systems. Industry sectors include professional services, retail, hospitality and entertaining & media and advertising services.

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