New VAT system will be fairer but more complex

HMRC’s new penalty regime for late submitting and late funds of VAT will likely be fairer however extra advanced with curiosity being charged on all late funds.

Alan Pearce, VAT companion on the Blick Rothenberg, stated : “HMRC is introducing a brand new penalty regime for late submitting and late funds of VAT for returns commencing on or after 1 January 2023. Which all companies which are registered for VAT want to concentrate on.

The brand new regime will likely be fairer to companies by penalising those who persistently file and pay late, fairly than those who make the odd slip up. It’s going to exchange the present default surcharge regime that has been extensively criticised for levying important penalties the place fee is simply someday late. Nonetheless, in contrast to the present regime, there will likely be a extra advanced multi-tier penalties system with curiosity additionally being charged on all late funds.”

The brand new regime will successfully have 4 several types of expenses; a hard and fast penalty quantity for late filings based mostly on a factors system (an identical idea to totting up factors for driving offences); an preliminary two-part fastened fee penalty for late funds of two% and 4% (making use of to the primary 15 and 30 days); an ongoing 4% each day interest-based penalty (making use of after 30 days) and curiosity charged at 2.5% above the Financial institution of England base fee (making use of from the outset).

“The brand new penalty regime is extra difficult than the present default surcharge regime. Nonetheless, it seems to be fairer to these companies that may sometimes pay late and rewards those who do their greatest to pay excellent tax as early as doable. Below the present guidelines companies are sometimes hit with giant surcharges of between 2% and 15% for merely being someday late. This will typically be brought on by a one-off administration error or banking delay.

The change ought to due to this fact be welcomed and may keep away from the necessity for a lot of default surcharge appeals the place the quantity of the penalty is disproportionate to the quantity and timing of the late fee. Alan stated: “For a lot of defaulters, the brand new guidelines will end in a comparatively small penalty and curiosity having to be paid.

Nonetheless, for companies that persistently fail to submit their VAT returns on time and are continuously greater than 30 days late in paying, they’ll undergo the best degree of penalties and curiosity. Plainly HMRC have struck a steadiness of penalising serial offenders extra closely whereas incentivising compliance and being extra lenient on those who make the occasional slip up.”

“Moreover, HMRC has introduced it is going to apply a “gentle contact” for the primary yr of operation. Particularly, the place a enterprise is doing its greatest to conform, HMRC will waive the primary 2% fastened penalty for VAT durations as much as the tip of 2023. This successfully signifies that supplied funds is acquired inside 30 days of the due date (or, throughout this era, an method to HMRC has been made for a time to pay utility) penalties will be prevented. Nonetheless, even the place settlement is reached with HMRC, curiosity will nonetheless apply.”