Do you rely on having a VAT repayment and therefore don’t always file your VAT on time? If so, the new VAT penalty regime may leave you facing penalties, so please read on.

The new points-based system is set to be introduced for VAT return periods starting on or after 1 January 2023, replacing the current default surcharge system. The current default surcharge system is calculated based on a percentage of the VAT liability. However, farmers mainly have VAT repayments rather than liabilities, meaning there are generally no penalties for late submission.

How does the new points – based systems works?

If you miss a filing deadline you will receive a ‘point’ and will be notified of this by HMRC.  Once you meet the threshold of points (two if you submit annually, four if you submit quarterly or five if you submit monthly) a financial penalty of £200 will be charged, plus a further £200 penalty for each subsequent late submission.

Points have a lifetime of 2 years and after this they will expire, unless you are at the penalty threshold, in which case a period of compliance must be met to reset the points.

There are also new rules for a late VAT payment, which you should be aware of.  If you find yourself in the position of making a VAT payment, for example due to selling machinery or having contracting sales, then making sure your payment arrives with HMRC on time is key.  No penalty will be payable if the VAT liability is paid within 15 days of the due date.

From day 16 late payment penalties will be applied as follows:

•Penalty one – 2% of the outstanding VAT – applied when payment is made between day 16 and day 30

•Penalty two – 2% of the outstanding VAT at day 15 plus 2% of the outstanding VAT at day 30 – applied on any VAT unpaid after day 30

•Penalty three – 4% per annum, calculated on the daily total unpaid tax – incurred from day 31              

If you are in a position where you are unable to pay your VAT then please contact HMRC before the VAT is due, in order to arrange a ‘Time to Pay’ agreement.

If you have any questions or concerns, please speak to your usual Dodd & Co adviser.

Guest Contributor

Sam Bell
Senior Accountant

Dodd & Co