Changes to penalties for late filing and payments of VAT in 2022

13th October 2021

With affect from 01 April 2022, HMRC will be changing its penalty regime for the late filing and late payment of VAT liabilities. This is due to be implemented as HMRC plan to harmonise the penalties and interest regimes among all tax liabilities, including VAT.

Currently, HMRC have opted to use the Default Surcharge Liability Notice when a VAT return is filed or paid late. If the taxpayer is late in filing or paying a VAT liability, the taxpayer will enter their first surcharge period with no consequence. If the taxpayer defaults again within 1 year of the first default, the period extends. Penalties are then enforced on further defaults for the late submissions and payments for VAT at 2%, 5% and rising to 15% of the liability due.

It is important to note that in the new regime, there will be separate penalties and interest charged for late filing and late payment.

Late filing of VAT Return

The new regime for late filing will introduce a points-based penalty system. Taxpayers will be given one point for every time a VAT return is not filed by the deadline. if the taxpayer accrues the number of points on the thresholds below, they will become liable to a fixed penalty of £200 with an additional £200 penalty for every subsequent late submission. The points will be reset to zero if all the VAT returns are submitted on time within the periods shown below:

Late payment of VAT Return

The taxpayer will not incur a penalty for late payment if it is paid within 15 days after the due. If the payment is paid within 15 to 30 days after the due date, a penalty charge of 2% of the liability will be liable to the taxpayer. If the taxpayer has not made payment or agreed a time to pay with HMRC for the liability after 31 days, then an additional penalty of 2% of the liability outstanding will become chargeable to the taxpayer (4% of the total liability). HMRC will also implement late payment interest for VAT, a measure that will result in interest arising from the date that payment of the liability becomes due, until the date it has been received by HMRC.

To summarise for late filing of the VAT return, if the taxpayer accrues their points threshold, there will be a fixed penalty of £200. This will increase should there be any subsequent late submissions. As for late payment of VAT, penalties will be enforced if the payment is paid 15 to 30 days after the due date (2% of the liability). A further penalty of 2% of the liability will be chargeable should the liability still remain outstanding 31 days after the due date. Taxpayers will also accrue late payment interest for every day after the payment due date that the liability has not been paid to HMRC.

It is therefore vital that businesses are prompt in both the preparation of their VAT returns and any payment of VAT.

Zac Davidson