New VAT filing rules — penalty points

Oct 23, 2023 | Business tax

The UK tax landscape is continually evolving, and for businesses, staying abreast of changes is paramount to ensuring compliance and avoiding penalties.

One such development you need to be aware of is the new penalty points system for Value-Added Tax (VAT) filing failures.

In this blog post, we’ll break down the critical components of this new system to help you navigate it effectively.


What’s changing?

Previously, a default surcharge model was employed for late VAT return filing and payment. Businesses would incur increasing surcharges for subsequent offences within a 12-month period.

The new penalty points system aims to offer a fairer approach, allowing greater leniency for isolated errors while becoming increasingly stringent for serial non-compliance.


How does the penalty points system work?

Instead of immediate financial penalties, businesses will now accumulate penalty points for each failure to file a VAT return on time.

Each late submission will earn a single point. The accumulation of points will lead to financial penalties only after reaching a specific threshold, which varies depending on the frequency of your VAT returns:

  • quarterly filers: 4 points
  • monthly filers: 5 points
  • annual filers: 2 points

Once the points threshold is reached, a financial penalty is incurred for each subsequent failure to file on time, in addition to an additional penalty point.

The points have a lifetime, and they expire after a compliance period (a period of filing all VAT returns on time) as follows:

  • quarterly filers: 24 months
  • monthly filers: 12 months
  • annual filers: 24 months

After reaching the penalty threshold, if you maintain good compliance for a set period, points will begin to expire, potentially bringing you back below the threshold and removing you from the financial penalty zone.


What about late payments?

Late payment penalties are separate from the points system and will continue to attract immediate financial repercussions.

The new regime also introduces a two-tiered penalty for late payment.

The first-tier penalty (2% of unpaid VAT) applies if the payment is made within 15 days after the due date, and the second-tier penalty (4% of unpaid VAT) applies if payment is made between 16 and 30 days late. Payments later than this will attract a daily interest rate.


Actionable steps

Stay informed 

Regularly check HMRC communications and guidelines to stay updated on any changes.

Automate reminders

Use accounting software that can set reminders for filing dates.

Consult your accountant 

For any ambiguities, it’s always best to consult a professional.

Review your compliance

If you’ve previously been lax about filing deadlines, now is the time to tighten up procedures.


Wrapping up

The new VAT penalty points system introduces a more nuanced approach to managing late filings.

While it offers some leniency for isolated mistakes, repeated non-compliance will lead to more stringent penalties.

Understanding this system is critical for all businesses, not only to maintain compliance but also to mitigate the impact of penalties on cash flow and operational efficiency.

If you’re in any doubt, get in touch with us today to talk more about these VAT filing changes.

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