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VAT Penalty points - what is changing in 2023

From 1st January 2023, you'll get penalty points if you submit a VAT return late, even if submitting a nil return.


The previous VAT default surcharge is being replaced by a new penalty scheme which changes penalties for returns submitted late, VAT payments paid late and alters how interest is charged.


How late submission penalties work

You must send a VAT Return by the deadline for your accounting period. Your accounting period is when you need to send a return to HMRC, for example, quarterly.


Late submission penalties work on a points-based system.


For each return you submit late you will receive a penalty point.


Once you’ve reached a penalty point threshold, you’ll receive a £200 penalty and a further £200 penalty for each subsequent late submission while you’re at the threshold.


The penalty point threshold for your accounting period

The penalty point threshold is set by your accounting period. The threshold is the maximum points you can receive.



Accounting period

Penalty points threshold

Annually

2

Quarterly

4

Monthly

5




Penalty example for a business making quarterly returns

A company submits their VAT Return quarterly. This means their penalty point threshold is 4.

They already have 3 penalty points because they submitted 3 previous returns late.


They submit their next return late and get a fourth penalty point. Because they’ve reached the penalty point threshold, they receive a £200 penalty.


The company submits their next return on time. They stay at threshold of 4 penalty points but do not get a £200 penalty.


The company submits their next return late. As they’re still at the penalty point threshold of 4 points, they receive another £200 penalty.


Find out more from ‘Overview of the new VAT late submission, late payment penalties and interest changes on Videos and webinars for VAT.


Find out how to remove penalty points


If you use a non-standard accounting period


If you have agreement from HMRC to use non-standard accounting periods, different rules apply.



Accounting period

Penalty points threshold

Rules that apply

Over 20 weeks

2

Annual

Over 8 weeks, no more than 20 weeks

4

Quarterly

8 weeks or less

5

Monthly



Changing your accounting period

If you’ve agreed with HMRC to change how often you submit returns, we will adjust your threshold and penalty points.


This is how we will adjust your penalty points threshold:



Previous accounting period

Previous penalty point threshold

New accounting period

New point threshold

Annual

2

Quarterly

4

Annual

2

Monthly

5

Quarterly

4

Annual

2

Quarterly

4

Monthly

5

Monthly

5

Annual

2

Monthly

5

Quarterly

4



When you change your accounting period:

  • we’ll set your penalty points to zero if the adjustment gives you a minus figure

  • we will not make an adjustment if you have zero points

You cannot appeal adjustments to your penalty points.


When you change from a non-standard accounting period to the equivalent standard period, your points will not change.


Taking over a business

If you take over a VAT-registered business as a ‘going concern’ any penalty points built-up by the business will not be transferred to your VAT registration number. This will be the case even if the VAT registration number is transferred from the previous owner to yourself.

Find out more about what ‘going concern’ for VAT means in paragraphs 1.3 and 1.4 of VAT Notice 700/9.


VAT groups and penalty points

If the representative member of a VAT group changes, any penalty points they’ve built-up are transferred to the new representative member.


The VAT groups’ penalty points total does not change if a person:

  • joins the group, even if the joining member had penalty points

  • leaves the group (the leaving member does not take points with them)

VAT Returns not affected

The late submission penalty rules do not apply to your:

  • first VAT return if you’re newly VAT registered

  • final VAT return after you cancel your VAT registration

  • one-off returns that cover a period other than a month, quarter or year

For example, you might make a one-off return covering a four-month period because you changed from submitting quarterly to annually.


Appeal a point or a financial penalty

If you receive a late submission penalty point or a £200 penalty, HMRC will tell you in a penalty decision letter. The letter will offer you a review with HMRC.

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