The New Points-Based Penalties for Making Tax Digital for VAT

Making Tax Digital (MTD) for VAT is in full swing, and HMRC will soon launch a new system for issuing VAT submission and payment penalties.

The new points-based penalty system for Making Tax Digital for VAT will apply from January 2023. You can still be fined under the existing rules until then!

Will I be fined if I’m late submitting my VAT return or paying the bill?

The new points-based penalty system won’t launch until January 2023, so until then HMRC will record a default if you don’t submit your VAT return on time, or if you miss the payment deadline.

They’ll issue you with a penalty surcharge as a percentage of what you owe for that VAT period, which you must pay in addition to your actual VAT bill.

You’ll enter a 12-month period, known as a surcharge period, which will be extended by a further 12 months if you default again. The surcharge rate increases each time you default within a 12-month period, with the actual amount dependant on you annual turnover.

 

How many times you default within 12 monthsSurcharge rate if your annual turnover is less than £150,000Surcharge rate if annual turnover is £150,000 or more
1stNo surchargeNo surcharge
2ndNo surcharge2% (no surcharge if this is less than £400)
3rd2% (no surcharge if this is less than £400)5% (no surcharge if this is less than £400)
4th5% (no surcharge if this is less than £400)10% or £30 (whichever is more)
5th10% or £30 (whichever is more)15% or £30 (whichever is more)
6 or more15% or £30 (whichever is more)15% or £30 (whichever is more)

 

You might also receive a penalty if you accidentally or deliberately submit a VAT return which under-states or over-claims VAT. There’s also a 30% VAT penalty if you don’t tell HMRC about a VAT assessment which is too low within 30 days, and a £400 fine for sending a paper VAT return without permission.

The MTD VAT points-based penalty system from 1st January 2023

The existing rules will be replaced in January 2023 when HMRC’s new points-based system comes into effect. Under the new rules, missing the VAT submission deadline will accrue one penalty point each time. Each penalty point is valid for two years, and you’ll receive a fine each time you reach the penalty threshold.

The VAT penalty points threshold is different depending on how often you need to make VAT submissions in the VAT accounting scheme you register to.

 

How often do you make a VAT submission?How many points you will receive before reaching the penalty threshold
Annually2 points
Quarterly4 points
Monthly5 points

 

Will I be fined if I’m late paying my MTD VAT bill?

Yes, as well as penalties for VAT-registered businesses who miss their VAT submission deadline, there are fines for those that don’t pay their bill on time. The penalty is based on how late you are paying your VAT bill.

 

How many days after the due date you pay your VAT billThe penalty charge
0-15 daysNo penalty
16-29 days2% of the amount outstanding
30 days2% of the tax outstanding at day 15, plus 2% of the tax outstanding at day 30
31 days or more4% of the amount owed, calculated daily until you pay it all off

What if I can’t pay my VAT bill on time?

Rather than ignoring it and hoping it goes away (it won’t), you should contact HMRC to make a ‘Time to Pay’ arrangement. This is an instalment plan which, as the name suggests, allows you to agree a repayment period. There’s no set length as to how long the repayment period will be – it depends on how much you owe, and what you can afford to pay (taking into account other spending you might need to worry about).

Make sure you have your VAT reference number handy, as well as the details of what you owe and other outgoings when you make the call.

Find out more about our MTD for VAT software, and create your free account today.


Liam Cullen

I'm fully AAT qualified, with a passion for straightforward bookkeeping. In my spare time you'll find me using my Everton season ticket.


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