Penalty Reform for VAT

HMRC have provided us with the attached table which shows the first affected accounting period for penalty reform for VAT under a range of representative filing frequencies, and the corresponding dates on which the earliest possible late submission penalties, late payment penalties and interest could be applied.

The table reflects that there will be a one year ‘period of familiarisation’ with the new late payment penalty regime. Once the new regime is in place from 1 January 2023, HMRC will take a light-touch approach to the initial 2% late payment penalty for taxpayers in the first year of operation. In the first year, where a taxpayer is doing their best to comply, HMRC will not assess the first penalty at 2% after 15 days, allowing taxpayers 30 days to approach HMRC before HMRC charges a penalty. See HMRC’s policy paper for further information under the heading ‘Where HMRC might not assess a late payment penalty’. While the policy paper says ‘where a taxpayer is doing their best to comply’, HMRC have confirmed that they do not apply a behavioural element to the period of familiarisation and that they will apply the same approach to everyone.

HMRC have also confirmed that the current ‘default surcharge’ regime will continue as normal throughout 2022, without any specific easement or ‘soft landing’ for new Making Tax Digital (MTD) businesses.