VAT registered businesses must now use MTD-compatible software to file VAT returns, as the old online form where VAT figures had to be typed in has been closed.
To encourage businesses to file on time under the MTD regime, the late filing penalties are being separated from the late payment penalties for VAT periods beginning on and after 1 January 2023.
Late filing penalties will be based on points awarded for each late submission. A penalty is levied only when the appropriate points threshold is reached, which depends on how regularly the return is filed:
- Annual returns – 2 points
- Quarterly returns – 4 points
- Monthly returns – 5 points
Taxpayers who file quarterly VAT returns will receive a flat £200 penalty on the fourth late submission. Each subsequent late filing will also trigger another £200 late penalty until the points slate is wiped clean by a period of perfect compliance.
Perfect compliance means being up to date with all outstanding VAT returns and filing current VAT returns on time for 12 months (6 months for monthly returns, 2 years for annual returns).
If you do not always file your VAT return on time because you regularly receive VAT repayments, you must do so in future. All late filed VAT repayment claims will attract points and penalties. There is no soft-landing for this new late filing regime.
Late VAT payments and interest
The new penalty regime for late payment of VAT is fairer to those who miss the VAT payment deadline by a few days.
For VAT due in relation to periods beginning on and after 1 January 2023 you will have up to 15 days to pay, or arrange a time to pay agreement, without incurring a penalty. For the first year of this new system, you will have 30 days to pay the VAT liability in full instead of 15 days.
From 2024 onwards the new late payment penalties will be applied in two parts:
First penalty:
- 2% of the VAT unpaid at day 15; and
- a further 2% of the VAT unpaid at day 30
If the payment is made after day 30 the first penalty will be 4% of the amount due. However, if full payment is made between days 15 and 30, this first penalty will be set at 2%.
Second penalty
From day 31 the penalty is charged daily, based on an annual rate of 4% of any outstanding amount.
Interest
The rate of interest applied for late payments of VAT will be the Bank of England base rate plus 2.5%. Interest will be paid on repayments at the Bank of England base rate minus 1%, subject to a minimum rate of 0.5%.
There is no carry forward of default periods or surcharge levels from the old VAT penalty system into the new late filing or late payment penalty regimes.
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