You may have heard that VAT penalties have changed for 2023. And if you haven´t, you have now. But without making it way more complicated than it really needs to be, what do you actually need to know? Here´s a short guide outlining what has changed and what it means.
What has changed?
HMRC has changed how penalties are worked out for VAT returns from the 1st of January, 2023. This applies to VAT quarters that start on or after the 1st of January 2023 – so for most VAT-registered businesses, this means it starts with your March, April, or May 2023 VAT quarter end.
At the moment, you don’t always get a VAT penalty for being late with your VAT return or with your payment – and that will continue, which is good news! However, in the past, you wouldn’t get a financial penalty for being late with a nil return or a repayment return …and now you can.
This change will particularly hit repayment VAT traders like farmers, builders, or exporters who might not be as prompt as they could be. However, it can catch anyone who is late with their VAT returns.
Things to bear in mind…
How the penalty system will work
As well as the criteria for a penalty, the change has moved from a 2nd strike basis to a penalty point basis.
To avoid receiving points, you must send your VAT returns by the deadline for your accounting period (e.g. quarterly). If you file late, HMRC will allocate you one point each time you miss a VAT return filing deadline.
Just like driving license points, if they build up and reach a certain threshold, you´ll get a fine (e.g. for VAT-registered businesses who file quarterly, 4 points = £200 fine), or they will expire if you demonstrate good VAT filing compliance for two years.
The penalty point threshold is set by your accounting period
New VAT penalties from the 1st of January 2023 state that the penalty point threshold is set by your accounting period. The threshold is the maximum points you can receive.
| ACCOUNTING PERIOD | PENALTY POINTS THRESHOLD | PERIOD OF COMPLIANCE |
| Annually | 2 | 24 months |
| Quarterly | 4 | 12 months |
| Monthly | 5 | 6 months |
Changing your accounting period? If you´ve agreed with HMRC to change how often you submit returns, they will adjust your threshold and penalty points. E.g. if you´re changing from filing annually to filing quarterly, the penalty point threshold will change from 2 to 4.
Taking over a business as a ´going concern´? Any penalty points built up by the business will not be transferred to your VAT registration number. This will also be the case if the VAT registration number from the previous owner is transferred to you.
Read more about penalty points at Gov.uk.
Don’t be late! Be organised!
If you have any queries on new VAT penalties or you´re having issues being organised with your bookkeeping and VAT returns, then speak to us; we can help you get sorted! We can remove the hassle from bookkeeping, from helping you automate it to doing it for you.
With our help, you can work smarter, not harder, so if you don´t want to be late and you want to be organised, get in touch with us today.
> Book a meeting with me.
> Or ping me an email at [email protected].
