New VAT Penalties: What they mean for you and your business

As you may already know, the UK government has changed the way it charges penalties for late VAT Returns and payments which affects all VAT-registered businesses.

We want to make sure you understand the new rules and how to avoid/reduce the penalties.
Here are the main points you need to know:

Late VAT Return Submissions

Every time you miss a deadline for your VAT Return, you will receive a penalty point. These points stay on your record for 24 months.
Your VAT-registered business is able to accumulate 4 penalty points on your record prior to any financial penalties being applied.
Should a VAT Return be submitted late whilst having 4 points on your record, HMRC will issue a £200 penalty for each subsequent late VAT Return.

Late Payment Penalties and Interest

If you don’t pay your VAT on time, you may also have to pay a late payment penalty and interest.
These penalties are calculated based on how late the payment is and the interest starts from the first day your payment is overdue up to the point it is paid.

The penalties are as detailed below:

  • No penalty, but interest is charged from day 1, if you pay up to 15 days late.

  • A penalty of 2% of the unpaid VAT, plus interest, if you pay 16 to 30 days late.

  • A penalty of 4% of the unpaid VAT, plus interest, if you pay 31 or more days late.

How to Prepare for the New VAT Penalties

It is imperative that your bookkeeping information is provided in a timely manner and VAT Returns are filed on time. This will help minimise any potential penalties for late VAT submissions as a result of the recent HMRC changes.

To help reduce the level information you need to supply, you can implement the following (if not doing so already)

  • Ensure business accounts and dedicated business accounts are being utilised wholly for business income and expenditure.

  • Setup live feed bank connections on your bookkeeping software, providing you’re using a cloud accounting product.

  • Utilise receipt capturing applications (can be provided at no additional cost for Blue Skies cloud accounting clients).

  • In order to guarantee you always have sufficient funds to pay your VAT liability -

  • Ensure VAT money is being transferred to a dedicated VAT savings account upon receipt of funds.

As always, it is better to get in touch with HMRC as soon as possible if you are unable to pay your liability. HMRC may be willing to setup a Time to Pay Arrangement which will allow you to pay your liability in monthly instalments whilst minimising penalties and interest chargeable.

We hope that this blog post has helped your understanding of the new VAT penalties.

As always, if you would like specific advice or have any questions, please do get in touch with us and one of team will be happy to help.

TBSP