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HMRC guidance on VAT penalty reform timelines

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HMRC has produced a table which sets out the effective time frame for the late-submission and late-payment penalties (and associated interest) for VAT from 1 January 2023. The table, published via the CIOT, sets out the first affected accounting period for penalty reform for VAT under a range of representative filing frequencies, together with the earliest dates on which penalties and interest could be applied.

HMRC’s policy paper on VAT penalty reform notes that there will be a one year ‘period of familiarisation’ with the new regime. In the first year of operation, from 1 January 2023, where a taxpayer is ‘doing their best to comply’, HMRC will not assess the first penalty at 2% after 15 days – instead allowing the taxpayer 30 days to approach HMRC before a penalty is charged.

HMRC has 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 businesses. HMRC’s note also confirms that accounting periods which straddle 1 January 2023 will be subject to the current, default surcharge regime.

One notable omission from the guidance is the repayment supplement which, under the current rules (VATA 1994 s 79) applies interest at 5% where HMRC has not met its 30-day deadline for repayments of VAT. Tolley (Tax Journal’s publisher) understands that, under the new rules, the intention was to remove the repayment supplement, with taxpayers instead receiving repayment interest at the standard rate (currently 0.5%).

Issue: 1564
Categories: News