As a business owner, it's important to stay on top of your VAT returns to avoid penalties.
HMRC introduced a new penalty point system for late VAT returns. Here’s a breakdown of how the system works and what it means for you.
The VAT Penalty Point System
The new VAT penalty point system, introduced in January 2023, replaces the previous surcharge regime. It’s designed to be more transparent and proportionate, ensuring that businesses are treated fairly for occasional late submissions while still holding repeat offenders accountable.
How the Penalty Points Work
Earning Points:
You receive a penalty point every time you submit your VAT return late.
Points accrue based on the frequency of your VAT returns (monthly, quarterly, or annually).
Thresholds:
Each type of VAT return has a points threshold. Once you reach this threshold, a financial penalty is applied.
Quarterly Returns: 4 points
Monthly Returns: 5 points
Annual Returns: 2 points
Penalties:
When you hit the threshold, you’ll receive a £200 penalty.
Additional £200 penalties are issued for each subsequent late submission after reaching the threshold.
Resetting Points
Points aren’t permanent. You can reset your points to zero by:
Period of Compliance:
Demonstrating a period of compliance without late submissions.
The length of the compliance period depends on your filing frequency:
Quarterly Returns: 12 months
Monthly Returns: 6 months
Annual Returns: 24 months
Submitting All Returns:
Ensuring all VAT returns are up-to-date and submitted, including any that were previously late.
Example Scenarios
Quarterly Filer:
You file late in January and receive your first point.
If you file late again in April, July, and October, you accumulate 4 points.
After the fourth late return, you receive a £200 penalty.
Any further late submissions result in additional £200 penalties until you meet the compliance criteria.
Monthly Filer:
You file late in January and get a point.
Late filings in February, March, April, and May bring your total to 5 points.
After the fifth late return, you get a £200 penalty.
Subsequent late returns trigger further £200 penalties.
Appeals
If you believe a penalty has been wrongly applied, you can appeal to HMRC. Valid reasons for appeal might include:
Serious illness or bereavement
IT issues with HMRC’s system
Unexpected events beyond your control
It’s important to provide detailed evidence supporting your appeal to increase the chances of it being accepted.
If you have any questions or need assistance with your VAT returns, feel free to reach out to our customer support team.
Proactive Steps To Avoid Filing Late
We have added some useful tips below to help you keep on top of your VAT return filings.
Keep on top of your transactions - By reconciling your transactions in Ember throughout the VAT period, you avoid having to rush to get them all done at once near the deadline.
Review your My Tasks page - You can keep track of your deadlines and any upcoming filings using the "My Tasks" page in your Ember account.
Check your emails - Ember sends out proactive email reminders as your VAT return deadline is approaching. If you aren't receiving these, make sure to check your junk / spam inboxes!
Make a note of the dates - Record your relevant filing dates on a calendar or in your diary so you have a personal record of when the filings are due.
If you have any questions regarding your VAT returns, please reach out to our team of expert accountants via Intercom in the bottom right corner of your Ember account.