New late submission and penalty regime for VAT delayed until January 2023

The new late submission and penalty regime for VAT has been delayed until January 2023, it has been announced.

The new system was set to replace the VAT default surcharge this April.

But the Financial Secretary to the Treasury, Lucy Frazer, has now confirmed that the reforms will be delayed to give HM Revenue & Customs (HMRC) more time to update its systems.

Under the existing scheme, your business will enter a 12-month “surcharge period” if HMRC does not receive your VAT return by the submission deadline or if full payment for the VAT due has not been paid by the deadline – known as “defaulting”.

If you default again during this time, you may have to pay an extra amount – the “surcharge” – on top of the VAT you owe.

The surcharge is calculated as a percentage of the VAT outstanding on the due date for the accounting period that is in default, increasing every time you default again in a surcharge period (up to a maximum 15 per cent).

But this system will be replaced by points-based penalties for late submission, interest charges and late payment penalties from January 2023.

This will see firms accumulate points for every late submission, with penalties issued after a business reaches a certain points threshold.

Commenting on the new regime, the Institute of Chartered Accountants in England and Wales (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 Making Tax Digital (MTD) for VAT from April 2022.”

The new penalty regime will extend to Income Tax Self Assessment (ITSA) customers with business or property income over £10,000 per year from the tax year beginning 06 April 2024, and for all other ITSA customers from the tax year beginning 06 April 2025.

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Posted in Value Added Tax.