VAT Return Related Penalty Points: Learn about the Penalties from HMRC to your Business
Are you a VAT-registered business owner in the UK who is unsure about the penalty rules and regulations and needs guidance in a jargon-free manner? If the answer to this question is yes, you have come to the right page.
In this blog, we will examine the various rules governing VAT-related penalties and points. To be more specific, we will be covering three key areas,
Penalties for late VAT return submission
Late payment penalties
Interest on late payment of VAT
Since 1st January 2023, the old system of VAT default surcharge has been replaced by this new penalty points system. As an business owner the ultimate responsibility for filing your VAT returns lies with you and also for making sure that payments are made on time for your business VAT returns.
Penalties for late VAT return submission
As per the new rules, if a small business in the UK that is VAT registered submits their VAT return late, they will start getting penalty points added against their business by HMRC. Depending on the accounting period which could be annually, quarterly (that is most businesses) or monthly, you have different thresholds. Once the business reaches the threshold, there is a £200 penalty point.
For annual accounting period, the threshold is 2 points; for quarterly, the threshold is 4 points and for monthly period, the threshold will be 5 points.
Example: ABC Ltd has submitted three quarterly VAT submissions late and HMRC has given them 3 penalty points. If they submit their next VAT return late, they will get the 4th point and will have to pay HMRC £200 penalty. After this point, each late return would attract a £200 penalty from HMRC.
Please note that it does not apply to first ever VAT return for a newly registered business or the final VAT return after cancelling the VAT registration. The same applies to one-off return that covers anything other from normal accounting period.
Late payment penalties
If the VAT that is due on the VAT return is paid late, it will also attract penalty. However, there are no points with this penalty regime. There are different periods and depending on which period you paid within, you attract a penalty amount.
For payment within 15 days, there is no penalty.
For payment between 16 to 30 days, there would be a first late payment penalty which is calculated at 3% on the VAT amount outstanding at day 15.
For payment after 31 days, there will be a first penalty which is again calculated at 3% on the VAT amount outstanding at day 15 plus another 3% on the VAT amount outstanding at day 30. Furthermore, there would be a second penalty which is calculated at daily rate of 10% per year on the remaining balance which is charged from day 31 onwards until it is paid in full or just before the 2 year assessment time limit.
Interest on late payment of VAT
The last penalty that you have to consider as a small business owner is the interest that is charged on late payment of VAT. Not only do you pay interest on late payment of VAT that is outstanding but interest is also charged on late payment of penalties. It is charged at the Bank of England base rate plus 4% and will be calculated from the first day after the payment due date until it is paid off.
With all these penalties, comes additional pressure and stress as a small business owner in the UK. This is why at Finest Accountancy, we strive to take this off your shoulders so that you can manage your day to day running of the business and leave the hassle of VAT to us. On top of that, our VAT service is completely free. All you have to pay for is our monthly bookkeeping charge where we already ensure that all your transactions are VAT compliant so that when it comes to VAT submissions, it is just a matter of completing the last step of the process. Thank you for reading and do share it if you have found this blog useful.