Understanding HMRC’s Updated VAT Penalty Regime: Key Changes and Implications for Businesses

• HMRC introduced a new VAT penalty regime on 1 January 2023, replacing the old default surcharge rules.
• The new system aligns VAT penalties with those for other direct taxes and aims to be fairer.
• Penalties focus on persistent or serious late submissions and payments, protecting against heavy fines for minor delays.
• Updates in April 2025 increased the financial impact of late compliance.
• Points-based penalties apply for late VAT returns, with thresholds for annual, quarterly, and monthly returns.
• Penalty points expire after a compliance period.
• New rules apply to repayment traders, who were not penalized under the old system.
• Late payment penalties were tightened in April 2025, with escalating charges from day 16 onwards.
• Interest on late payments is charged from the first day, with a rate of the Bank of England base rate plus 4%.
• Businesses can contest penalties through appeals if there is a reasonable excuse or calculation errors.
• The reformed system is more proportionate, focusing on repeat offenders and protecting against minor delays.
• The 2025 changes make late payment charges and interest more costly for businesses.

Source: deeksvat.co.uk

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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