Mistakes on your VAT (Value Added Tax) return in the UK may lead to VAT penalties. While compliance is the goal, mistakes happen, and VAT late payment penalties may follow. VAT is a significant aspect of doing business, and understanding its rules and regulations is important for any business owner. To learn more, continue reading our guide to VAT penalties.
What is VAT?
Before we discuss VAT penalties, let’s gain a better understanding of what VAT is. VAT is a consumption tax imposed on the value added to goods and services. In the UK, businesses are required to register for VAT if their taxable turnover exceeds the current threshold of over £90,000. Once registered, they must charge VAT on their sales, file regular VAT returns, and pay any VAT owed to HMRC.
What Are VAT Penalties?
VAT penalties in the UK are charges issued by HMRC to VAT-registered businesses. Penalties are given to VAT-registered businesses that break VAT regulations, such as failing to pay VAT on time or filing VAT returns late. Therefore, VAT penalties are split into two separate categories:
- Penalties for late VAT payments
- Penalties for late VAT returns
Operating as a VAT-registered business means that you must understand the rules surrounding VAT payments and filing returns.
What VAT Penalties Can HMRC Impose?
As mentioned above, VAT penalties are issued based on whether you’ve failed to pay or file a VAT return on time. For the majority of businesses, VAT payment and filing deadlines are the same – one calendar month and 1 week after the end of your VAT accounting period.
VAT Late Payment Penalties
If you’re late paying VAT, you will be issued charges. If a late VAT payment is:
- Up to 15 days late: No penalty
- 15 days late: 3% penalty based on how much VAT you owe by day 15
- 30 days late: Extra 3% penalty based on how much VAT you owe by day 30
- 30+ days late: Daily accruing 10% penalty issued until the VAT you owe is paid
VAT Late Filing Penalties
If you’re late filing your VAT return, you will be assigned a point per late submission. The point threshold is based on your accounting period, as follows:
- Annually: 2 points
- Quarterly: 4 points
- Monthly: 5 points
- Threshold reached: £200 penalty charge
Feeling unfamiliar with point-based late filing penalties?
If you’re slightly unfamiliar with point-based late filing penalties, don’t worry. Point-based late filing penalties were introduced in 2023 for filing VAT returns late. Before the point-based system, a standard VAT default surcharge regime was used.
Luckily, points do expire after two years, but only if you haven’t met your threshold. Your points can still be removed if they exceed the threshold, but only if:
- You submit all VAT returns on time during the compliance period
- Have no more outstanding or late VAT returns from the previous two years
If you have any questions about late payment penalties and late filing penalties, we advise speaking with a trusted accountant.
Can You Appeal Late VAT Penalties?
Yes, you can appeal late VAT penalties. If you believe that your business shouldn’t have been issued a late VAT penalty for a particular reason, you must contact HMRC to explain why you disagree. From the date of your penalty, you’ll have 30 days to get in touch to provide reasoning for the appeal.
How Can You Prevent VAT Penalties?
There are several ways to prevent VAT penalties, whether it be for late payments or filing your return:
- Stay informed about updates
- Regularly check HMRC’s official website
- Keep transactions, invoices, and receipts
- Ensure accurate and detailed record-keeping
- Work with an accountant who uses reliable accounting software
- Seek advice from your accountant when you have questions
In conclusion, the best way to prevent VAT penalties is by working alongside reputable accountants, such as ourselves at LJS Accounting Services!
Avoid VAT Penalties With LJS Accounting Services
VAT penalties can be complex to manage. However, working with knowledgeable VAT and bookkeeping accountants can increase your chances of avoiding such penalties. At LJS Accounting Services, we have a team of dedicated professionals who can handle your tax affairs accurately and efficiently, leaving no room for costly penalties.
We comply with relevant VAT tax rules, ensuring you stay on top of payments and submit your returns on time. We can help by undertaking all bookkeeping and VAT tasks on your behalf to ensure your business runs smoothly while preparing and submitting your VAT returns to HMRC by the statutory deadline.
For more information on our services or to speak to a member of our team, don’t hesitate to contact us today! We look forward to hearing from you.
Keli Evans, Director at LJS Accounting Services, excels in taxation and statutory accounts. With a focus on strong client relationships, she leads a diverse portfolio, overseeing vital financial aspects like VAT, payroll, pensions, and taxation with a holistic and committed approach.
