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Penalties for late submission

HMRC are changing the penalty system for VAT. The change will apply to VAT customers for accounting periods on or after 1st April 2022.

The new system is points-based and aimed initially to taxpayers who have submission obligations for VAT with a regular frequency (monthly, quarterly, or annually). This can be in the form of a VAT return or MTD regular update. It is important to note this will not apply to other occasional submissions.

HMRC will impose one penalty point each time a submission deadline is missed. They will notify you each time a point is placed on your account. Once the threshold for penalty points has been met, a financial penalty of £200 will be charged. Thresholds are determined by the frequency of your reporting period.  

Once the threshold is met, a penalty will be charged for each subsequent failure after this. The points total will increase once at the threshold. Thresholds deemed by frequency are detailed below:

 

Submission  frequency                       Penalty  threshold

              Annual                                                   2 points

Quarterly (including MTD)                                4 points

             Monthly                                                  5 points

 

In order to prevent historic failures from impacting occasional recent failures, points will have a lifetime of two years; after which they will expire. This is calculated from the month after the month where the failure occurred. However, if you are at the penalty threshold you must meet good compliance conditions for all points to be wiped. These are detailed below.

 

Penalty points will be reset to zero once both of the below conditions are met:

1.      A period of compliance (meeting all submission obligations on time for the period below); and

2.      The taxpayer has submitted all submissions which were due within the preceding 24 months. It does not matter whether or not these submissions were initially late.

 

The periods of compliance are:

Submission  frequency                                        Period of  compliance

              Annual                                                                     24 months

Quarterly (including MTD)                                                  12 months

             Monthly                                                                     6 months

 

It is important that all deadlines are met in order to avoid financial penalties. For further information, please contact Jake on 01227277667 or by emailing him at j.mackenzie@mphaccountants.co.uk

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