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United Kingdom

UK: New Penalty Regime Came into Power

1stopVAT’s team has previously covered the expected changes in the UK penalties and surcharges regime. As we have stepped into 2023, it is time to announce that the time has come, and the new regulation is already in place. The new penalties and surcharges for VAT-registered businesses are active from January 1st.

New process

With the updates in the VAT regime, the UK taxation authorities aim to reduce the number of late VAT returns received. A significant comes from separating late submissions and late payments in terms of their processing and repercussions, thus giving the system more structure.

Even though more sophisticated, the changes are generally considered to be fair as they are based on the relative approach, with repeated faults being penalized more harshly.

Late VAT returns

The largest difference in the penalty scheme is the new points-based system, similar to that many countries have for issuing driving penalties. Based on the new system, companies receive a point once they submit a late VAT return. Once the sum of the points reaches a set threshold, a penalty is issued, and subsequent late submissions start leading to penalties each time.

Businesses that file VAT returns yearly are allowed two points until the penalty, quarterly — four, and monthly — five points in a set period.

Once the point threshold is met, a £200 penalty is issued. However, it is possible to reset the points whenever all outstanding VAT returns for the past two years are submitted, and a business has not made a late submission for two years if annual submission frequency, a year if quarterly, or half a year if monthly.

Late VAT payments

From January 1st, late VAT payments result in interest charges and late payment penalties if the payment is late for more than two weeks.

The interest charge is set at the base rate of the Bank of England, with 2.5% added from the due date until the payment. If the payment is late for more than 14 days, a penalty charge is applied. The charge is 2% of the VAT outstanding on day 15. Another 2% is added on day 30, and if the payment is over 30 days late, a daily penalty reaching 4% annually will apply until full payment is made.

Time To Pay arrangement

For companies dealing with difficulties, the HMRC allows applying for a Time To Pay or a TTP arrangement. A TTP allows for paying the due amount in installments and delaying the payment. No penalty is charged if a business applies for a TTP before day 15 after the due date. It is also applicable if approval from the HMRC is received later.

A TTP arrangement comes with a set of strict conditions, which means that if a single TTP deadline is missed, full penalties are charged.

How to stay compliant?

If you are worried about your business’ tax compliance — you should allow trusted partners to ease your tax administration processes. At 1stopVAT, we have years of experience helping global businesses stay compliant, providing expert consultations and professional tax administration services. Let’s speak!