Experts urge businesses to beware of latest VAT changes

Business owners registered for VAT are being reminded to make sure they file their returns and pay on time or face falling foul of new penalties introduced by HMRC.

A scheme introduced last year is based on a points system – if you exceed the points for the firm’s filing period you will be fined and charged interest.

Jonathan Walton, director at chartered accountants and business advisors Whitley Stimpson said: “The new system is designed to help those businesses who occasionally miss a payment, but it cracks down on regular late payers and the fines could be very damaging.”

In more detail, you will receive one penalty point each time you submit a return late. The penalty points threshold for each accounting period is two for annual returns, four for quarterly returns or five for monthly returns. Beyond this you will receive a £200 penalty every time a return is submitted late.

The interest now amounts to two per cent on the VAT owed at day 15 for payments between 16 and 30 days overdue. For payments that are 31 days or more overdue it is two per cent of the outstanding VAT at day 15 plus two per cent of what is still outstanding at day 30.

If the default stretches longer then a second late payment is charged at a rate of four per cent on the outstanding balance from day 31. These penalties apply until the debt is paid off in full.

Penalties and charges also apply to businesses that submit nil returns and repayment returns.

To reduce the number of points, much like a driving offence, you have to meet a longer test of good compliance where returns are submitted punctually for a specified period dependent on your return cycle. All outstanding returns must be submitted to a points reduction to be considered.

Significantly, late submission penalties do not apply to a first VAT return from a newly registered business, a final return after a business cancels its VAT registration or one-off returns that cover a period other than a month, quarter or year.

HMRC will also help businesses that cannot pay their VAT bill in full, for example by setting up a Time to Pay plan. This should be within 15 days of the payment being due to avoid a penalty although a payment plan can be set up later to prevent you being penalised further.

Bear in mind the deadline for submitting VAT returns online is usually one calendar month and seven days after the end of an accounting period. This is also the deadline for paying HMRC.

Jonathan added: “Business costs are rising across the board from the price of supplies and components to growing delays in having invoices paid and VAT is just another burden to bear.

“If anyone is wondering how to manage their VAT payments affordably and avoid fines and interest, then they should speak to an accountant before it is too late.

“We have an expert team who can help minimise your tax burden whether you are a sole trader, partnership, limited company or public limited  company so you can focus on running your company.”

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