How to Avoid Penalties for Late VAT Return Submissions in 2023
From the 1st of January 2023, any business that submits its VAT return late will now be issued with penalty points from HMRC. This includes nil payment returns and applies to all VAT accounting periods beginning on or after the aforementioned date. The way interest is charged will also be changing.
Penalty points are issued on a points-based system, with one point being given for each late submission. Once you reach a certain threshold of points, you will receive a £200 penalty and an additional £200 penalty for each subsequent late submission while you remain at the threshold. The threshold for your accounting period is determined by how often you are required to send a VAT Return to HMRC - annually, quarterly, or monthly.
For example, a company submitting VAT Returns quarterly has a threshold of 4 points. If they already have 3 points due to previous late submissions and then submit another return late, they will receive their fourth point and be hit with a £200 penalty. If they then submit their next return on time, they will remain at the threshold of 4 points but will not receive another penalty. However, if they then submit their following return late, they will receive another £200 penalty as they are still at the threshold of 4 points.
If you have a non-standard accounting period with an agreement from HMRC, different rules apply. The penalty point threshold and rules that apply are based on the length of your accounting period. If your accounting period is:
More than 20 weeks:
- Your penalty points threshold is 2
- Annual rules apply
More than 8 weeks and less than or equal to 20 weeks:
- Your penalty points threshold is 4
- Quarterly rules apply
Less than or equal to 8 weeks:
- Your penalty points threshold is 5
- Monthly rules apply
If a business changes its accounting period, this can affect the penalty points threshold. For example, changing from an annual to a quarterly accounting period will result in a +2 point adjustment to the threshold. If the business has existing penalty points, they will also be adjusted based on the change in the accounting period. If a business switches from a non-standard to an equivalent standard accounting period, the points will not change.
If a business takes over a VAT-registered business as a 'going concern', any penalty points accumulated by the previous owner will not be transferred to the buyer's VAT registration number. This applies even if the VAT registration number is transferred to the buyer.
To avoid being hit with penalty points and penalties, it is important to ensure that VAT returns are submitted on time. If you are unable to do so, get in touch with us here at Raffingers and we'll happily assist.
If you have any further questions on this article or any further enquiries, then please don't hesitate to email me at mehul.thaker@raffingers.co.uk or click here.