CH193020 - Penalty reform: penalties for failure to pay VAT on time from 1 January 2023: overview

NB: “These rules currently only apply to VAT for VAT periods starting on or after 1 January 2023. These rules will come into force for other tax regimes at a future date. You must check the date from which these rules apply for the tax or duty you are dealing with.”
 

Section 117 and Schedule 26 to the Finance Act 2021 introduced new penalties for failure to pay tax by its due payment date. These penalties come into force for a specific tax on the day the Treasury appoints by regulations.  

SI 2022/1278 appointed 1 January 2023 as the day these penalties will begin to apply to VAT in respect of payments for accounting periods starting on or after 1 January 2023.  

It can also apply to VAT amounts included in assessments under S80B and S80(4A) VATA94. These assessments are not payable in respect of a prescribed accounting period but correspond to an amount in a claim under section 80 VATA94. Therefore, the commencement order provides for late payment penalties to apply to these amounts where the s80 claim (that the assessment relates to) is in respect of a prescribed accounting period starting on or after 1 January 2023.

This guidance therefore currently only applies to VAT. It will be updated when the penalties come into force for other tax regimes.

The VAT Default Surcharge regime will continue to apply for accounting periods starting on or before 31 December 2022, see VDSOG- VAT Default Surcharge Officer`s Guide for information about the surcharge regime.

Payments required in respect of a VAT period will be subject to either late payment penalties or default surcharge depending on the start date for the period.  Therefore, there is no need for a transitional provision.

 Finance Act 2021 also introduced 

• new penalties for failing to file returns (late submission penalties) which will apply to accounting periods starting on or after 1 January 2023, and  
• new rules for late payment interest and repayment interest which will also apply to accounting periods starting on or after 1 January 2023.  

By law, a taxable person is required to file their VAT returns by the due date for the relevant accounting period (see Late Submission Penalty guidance for further information).

A taxable Person must also ensure that payment of VAT due has cleared HMRC`s bank account by the due payment date for the accounting period.

Late payment penalties may also apply to payments due for a VAT return period that are not paid by the due date.

Late payment penalties could also apply to payments due as a result of any amendment or correction of a return, or an assessment made by HMRC if not paid on time.

For Payments on Account and Annual Accounting customers, late payment penalties will only apply to the balancing payment (that is, the total net of paid instalments) which remains unpaid after the due date for the relevant accounting period.

Where a person is liable to a penalty HMRC may assess and notify the penalty.

There is a right of appeal against a Late Payment Penalty. Where a person makes an appeal, they are entitled to a review. They can also apply for the appeal to be heard by the tribunal whether (or not) they have had a review. See

 

FA21/SCH26