In the 2021 Spring Budget, the Government announced a new penalty and interest regime to replace the VAT default surcharge.
From April 2022, this new penalty regime for late submission of tax returns and late payments will begin across VAT and Income Tax Self-Assessments (ITSA).
Interest charges and repayment interests will combine to bring VAT in line with other tax regimes.
How much the surcharge will cost and the rules surrounding this depends on several factors, most importantly, which tax it relates to. If you fail to tell HM Revenue & Customs (HMRC) about a tax liability within the designated time frame, it could also affect the tax surcharge.
Below is a brief outline of surcharges on late payments of Corporation Tax, PAYE and VAT.
To calculate a late Corporation Tax payment penalty, HMRC applies a percentage to the number of your outstanding tax amounts. This percentage will vary, depending on the reason for the non-payment of tax or error. The lowest per cent is 30, for non-deliberate mistakes, 70 per cent for deliberate but not concealed mistakes, and the highest is up to 100 per cent for deliberate and concealed mistakes.
If you took reasonable care when paying your tax but made a mistake, HMRC may reduce the penalty per cent if you alter them to the underpayment before they act on it.
A surcharge penalty on late payments of PAYE depends on how many employees the company has and can range from £100 to £400.
The amount of penalty varies depending on how many employees the company has, with the amounts ranging from £100 to £400. HMRC does not usually charge a penalty for the first late or non-payment within the tax year. However, if the payment is over three months late, you will receive a charge of an additional five per cent of outstanding tax and National Insurance Contributions (NICs).
VAT returns are usually due every three months, and they detail how much you owe and the amount of VAT you can claim.
If you do not file a VAT return on time, underpay, or your return does not reflect the right amount of VAT due, you will face a surcharge and penalty.
HMRC will then register a default, triggering a 12-month surcharge period, which if defaulted within the period, another year is added, and an extra surcharge is due.
Additionally, HMRC charges penalties of up to 100 per cent of the tax due to them if the return is carelessly or deliberately inaccurate, and up to 30 per cent for a return that is too low and you do not inform them of the mistake within 30 days. Plus, £400 for submitting a paper VAT return, unless specifically required.
Interest is at a rate of 2.75 per cent for up to two years.
The new regime is as follows:
- For accounting periods beginning on or after 1 April 2022 for VAT,
- For ITSA taxpayers with business or property income over £10,000 per year (who are required to submit digital quarterly updates through MTD for ITSA) for accounting periods beginning on or after 6 April 2023,
- For accounting periods beginning on or after 6 April 2024, for all other ITSA taxpayers.
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