Source HMRC
As reported in January, the two new penalty regimes for late filing and late payment, which were to come into effect for VAT from 1 April 2022, have been deferred until January 2023.
We now have more details of exactly when the new penalties will bite, as HMRC has permitted the CIOT to publish a useful table of commencement dates for VAT penalty reform.
Old default into two new regimes
The current VAT default surcharge regime covers both late payment and late filing of VAT returns all in one system.
This is quite different to the regimes that apply for other taxes where separate penalties generally apply for late payment of tax, and late filing of returns. Think of the fixed £100 penalties for late filing of self-assessment tax returns, and the 5% penalty charge that applies where tax is paid more than 30 days late.
HMRC has been planning to reform the penalty rules to make them more consistent across all taxes for some time, and MTD provides a trigger to do that. However, the new penalty regimes for VAT have not been aligned with the final rollout of MTD for VAT, apparently because HMRC needs extra time to make the necessary changes to its IT systems which are required for the new penalties.
The new late payment plus interest and late filing penalty regimes are certainly more complicated than the current VAT default surcharge, so I can see why additional time for programming may be needed.
Periods starting before 2023
Where the VAT period starts before 1 January 2023, the payments and VAT returns will be subject to the current default surcharge VAT penalty regime.
Although MTD filing will be compulsory for all VAT registered traders for VAT periods beginning on and after 1 April 2022, there will be no waiving of penalties for late VAT returns filed under MTD or for late VAT payments relating to those returns.
However, for the smaller businesses joining MTD for VAT for the first time in April 2022, a special waiver may not be necessary, as the default surcharge has extra leniency built in for businesses with turnover less than £150,000 (VAT Notice 700/50 para 4.2).