Changes to the penalty and interest regimes will apply to VAT returns for accounting periods beginning on or after 1 April 2022.

They slipped under the radar somewhat in supplementing documentation that accompanied Westminster’s Spring Budget on 3 March 2021.

From April 2022, a new penalty regime will apply if you miss a deadline to file your VAT return and if you’re late paying your VAT bill.

At the same time, interest rules will be harmonised across different taxes, including VAT, corporation tax, and income tax self-assessment.

Westminster estimates that the measures will raise £155 million a year by 2024/25, so this may well impact on you next year and beyond.

Late-submission penalties

Much like the rollout of Making Tax Digital for VAT, a new points-based penalties system will apply to VAT first.

Instead of receiving an automatic fine for missing the submission deadline, taxpayers will incur a penalty point for each missed VAT return.

A fixed £200 penalty will apply once the taxpayer meets a points threshold of five points in one month, four points in a quarter, or two points in a year.

The amount of penalty points you rack up will be on your tax record for 24 months, at which point they will expire assuming you comply with your other obligations during this period.

This points system will apply to self-employed property landlords with income of more than £10,000 from 6 April 2023, before rolling out to all self-assessment taxpayers from 6 April 2024.

Interest harmonisation

The interest harmonisation rules are poised to bring the VAT rules into line with the current rules for income tax.

The 5% VAT repayment supplement is set to be replaced with the 0.5% repayment interest rate for accounting periods beginning on or after 1 April 2022.

VAT repayments are usually made within 30 days of HMRC receiving a business’s VAT return, but the tax authority can enquire into the VAT return before processing the repayment.

If HMRC does not authorise the repayment within 30 calendar days, the business receives compensation known as a repayment supplement. Currently, this is 5% of the repayment (or £50 if greater) and is paid automatically by HMRC alongside the VAT repayment.

For example, if a VAT repayment of £10,000 is delayed by three months, the VAT-registered business might currently be entitled to a £500 repayment supplement. Under the new proposal, the interest it would receive will be £12.50.

Subject to any future change, ending the repayment supplement from April 2022 has the potential to cause cashflow disruption to some of the UK’s VAT-registered businesses.

As part of our comprehensive VAT service, we’re perfectly positioned to advise you on these changes to VAT. Alternatively, good business planning can mitigate this problem. Get in touch by emailing or calling 0141 221 2257 to find out how we can help.