New VAT penalty scheme from April 2022

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There are a lot of tax-related changes happening from April 2022, one of which is a complete overhaul of the VAT penalty scheme. The current VAT default surcharge system will be replaced by two separate regimes: one for late filing and one for late payment.

In relation to late filing, the taxpayer will receive a point for each late VAT return. A £200 penalty will be charged if the taxpayer reaches a certain points threshold. The penalty points threshold depends on the frequency of their VAT filing – 4 points for the standard quarterly return, 2 points if the taxpayer files annual VAT returns, or 5 points if the taxpayer files monthly returns.

For quarterly VAT returns, this system therefore means that a taxpayer could file three late returns, and be charged an automatic a penalty of £200 on the fourth late submission.

Every late submission after the points threshold is reached will trigger another £200 penalty, but these additional penalties will not add further points.

HMRC will inform the taxpayer every time a point or penalty is levied and all points and penalties can be appealed. Each point will expire after two years, unless the penalty threshold has been reached.

In relation to late payment, there is no points system. From April 2022 there will be a 15 day grace period, with payments made more than 15 days late triggering an automatic penalty, starting at 2% of the unpaid amount, and increasing depending on how late the payment is.

For further advice on VAT issues, please call Ellis & Co accountants in Chester on 01244 343 504.