The longstanding default surcharge system will be replaced with a new penalty regime for return periods starting on or after 1 April 2022. How will this affect you?
Out with the old. Under the current default surcharge system, a penalty is based on the unpaid tax that your business owes on the due date of the return. This starts at 2%, rising to 15% with each subsequent offence. You will have already received a surcharge liability notice for the first offence and only be penalised for late payments within the following twelve-month period, a lifeline, so to speak. However, the new system will apply separate penalties for late paid tax and also submitting your return late.
Trap. You don’t currently get a surcharge if you pay the tax on time but put the return in late. That will change with the new system.
In with the new. A limitation of the existing system is that a payment made one day late results in the same surcharge as one made six months late. But the new regime will raise extra penalties according to the length of time it takes you to pay. In other words, there will be a big incentive for you to pay your dues as soon as possible.
Tip. The new system will also give your business an incentive to agree a time-to-pay proposal with HMRC if you have a long-term payment challenge.
Interest. Interest will also be charged on late paid tax, as well as a penalty, calculated at 2.5% above the Bank of England rate.
Late returns. HMRC will issue a single penalty point for the late submission of a VAT return and, once your business has exceeded a points threshold for multiple missed returns, a flat penalty of £200 will be imposed for each late return.
Tip. As with the current system, you can appeal against a penalty if there is a reasonable excuse for either the late payment or return.
From April 2022, penalties will apply for late VAT returns as well as late payments of tax - paying the VAT on time won’t mean a nil penalty any more. The new system will increase the penalty based on the length of time you take to pay.
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