HomeVATVAT penalty and interest reform delayed

VAT penalty and interest reform delayed

Planned reforms of the VAT penalty and interest regimes for late filing and payment, which were originally due to take effect from April this year, will now be delayed until 1 January 2023, the Financial Secretary to the Treasury has announced.

The news comes soon after HMRC waived late filing and late payment penalties for Self Assessment taxpayers for one month – offering them additional time to complete their returns and pay tax due.

Until 1st January 2023, the existing default VAT surcharge rules will continue to apply. While the extension of the new regime to Income Tax Self-Assessment (ITSA) is still intended to take place as originally planned, from April 2024 for MTD taxpayers, and April 2025 for all other taxpayers in ITSA.

The changes will replace the default surcharge with:

  • Points-based penalties for late submission.
  • Interest charges.
  • Late payment penalties.

In a Written Ministerial Statement, Financial Secretary to the Treasury Lucy Frazer explained HMRC’s reasons for the 9-month delay: “HMRC is committed to becoming one of the most digitally advanced tax authorities in the world.

“The ambition and pace of change needs to be balanced with  well-tested systems and  good customer service, particularly when businesses are facing additional challenges and uncertainty.

“This  extra  time allows HMRC to ensure the IT changes necessary for the new penalties and interest charges can be introduced as effectively as possible,  ensuring a high standard of service to customers.”

For more on the VAT penalty and interest reform surcharges, please visit the government website.

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