HMRC has published its latest penalty regime rules for VAT accounting periods starting on or after 3 January 2023.
The penalties will cover any late submissions of VAT returns as well as nil or repayment returns. The VAT default surcharge has also been replaced, along with the way interest will be charged for late submissions and outstanding VAT bills.
There are different rules for the way the VAT surcharge is applied for accounting periods on or before 31 December 2022, and full guidance is available on the HMRC website.
How late submission penalties work
From now on, late submission penalties will work on a points-based system. For each late VAT return, taxpayers will start to accrue a penalty point until they reach a certain threshold.
Once someone reaches the threshold, they'll receive a £200 penalty. From then on, a further £200 fine will apply for each late submission.
A person's penalty threshold will depend on their accounting period. The thresholds are as follows:
| Reporting period | Penalty points |
| Annually |
Two points |
| Quarterly | Four points |
| Monthly | Five points |
All businesses will receive a 15-day grace period for submissions, but once those are over, fines will be given out without warning. The percentages of fines are:
| Days passed the deadline | Penalty |
| 15-30 days | 2% |
| 30 days | 4% |
| More than 31 days | Daily penalties at 4% the outstanding amount |
Previous delays
The new changes were originally due to rollout in April 2022, but after some consideration, the Treasury made the decision to delay until this year. This was mainly to allow for HMRC's digital systems to be ready for the amendments.
At the time, financial secretary to the Treasury, Lucy Frazer, said:
"HMRC is committed to becoming one of the most digitally advanced tax authorities in the world. The ambition and pace of change needs to be balanced with well-tested systems and good customer service, particularly when businesses are facing additional challenges and uncertainty.
"This extra time allows HMRC to ensure the IT changes necessary for the new penalties and interest charges can be introduced as effectively as possible, ensuring a high standard of service to customers."
Rules to extend to other areas of MTD
The Institute of Chartered Accountants for England and Wales (ICAEW) said that the delay would benefit taxpayers, especially when considering the implementation of Making Tax Digital (MTD) for VAT.
In a statement from 2022, the ICAEW said:
"ICAEW understands that the policy remains unchanged and that the delay is to allow sufficient time for necessary changes to be made to HMRC's systems.
"The deferral brings with it the considerable benefit that the changes are now decoupled from the extension of MTD for VAT from April 2022.
"The penalty rules will also extend to income tax self-assessment (ITSA) in the future. The start date is still expected to be the 2024/25 tax year for those mandated for MTD ITSA from that date and from 2025/26 for all other ITSA taxpayers."
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