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Late VAT Payments: Surcharges, Penalties and Fines: Advice for limited company directors

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What are the penalties for paying VAT late?

HMRC will issue penalty points for the late or non-submission of your limited company VAT Return. This system introduced in 2023, replaced the VAT Default Surcharge scheme. Under the new system, penalty points will accrue until you reach the penalty point threshold. Once this is reached you will receive a £200 fine, with an additional £200 penalty for each further late submission.

What happens when you miss a VAT deadline?

If you are late submitting your VAT Return to HMRC, you will begin to accrue penalty points. This applies to accounting periods beginning on or after 1 January 2023. You will continue to be issued with penalty points until you reach a threshold, at which point, you will receive a £200 fine. Additional £200 fines will continue to be charged until you bring you VAT account up to date. 

This scheme replaces the old regime where you would be instantly hit with a fine, or alternatively a Surcharge Liability Notice depending on your VAT payment history. 

If you are unable to find the funds to bring your account up to date immediately, one option is to speak to HMRC about the possibility of a Time to Pay (TTP) arrangement. 

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Understanding the late VAT Returns Penalty Points System

The first thing to bear in mind is that HMRC does allow some amount of ‘forgiveness’ and if this is your first late submission of VAT within a 12 month period you will be issued with a penalty point which acts as a warning. HMRC doesn’t want to force businesses into further debt so there is some amount of leeway in the very beginning before further action is taken

This initial penalty point should serve as a reminder that the owed VAT amount is now late and that you need to bring your account up to date. If you do not adhere to this warning then further points will be issues and you will start to face financial penalties.

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The Penalty Point Threshold for Late VAT Returns and Payments

The threshold for where your penalty points will start to attract £200 fines depends on how your accounting period and how often you are required to submit a VAT Return.

Accounting PeriodPenalty Points Threshold
Annually2
Quarterly4
Monthly5

Removing VAT Penalty Points

If you are not at the threshold, penalty points will automatically expire on the last day of the month, 24 months after they were initially awarded if the deadline for submitting the VAT Return was not the last day of the month. If the deadline for submission was the last day of the month, then they will expire on the last day of the month, 25 months after being issued. 

If you are at the threshold, then points can only be removed by doing both of the following:

  • Submitting all outstanding VAT Returns for the past 24 months
  • Completing a 'period of compliance' where you must submit all returns on time during this period. This period ranges from 24 months for those submitting annual returns, 12 months for those submitting quarterly returns, and 6 months for those who submit monthly.

What can I do to prevent late VAT payments?

There are always reasons behind a missed or late vat payment, and it is vital you get to the root of what is causing your inability to pay as a matter of urgency. Paying the VAT late can hint at deep-rooted financial concerns which could have a disastrous impact on the viability of the company as a whole should this continue without redemptive action being taken.

A lack of available money with which to pay the VAT typically hints at wider company cash flow issues. As VAT is collected by a company from its customers on behalf of HMRC, in theory the money should already be there to pay the bill when it arrives. In many instances where a company is unable to pay, it is because this money has not been adequately ringfenced for the purpose intended and instead has been used to meet other business expenses and overheads.

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What are my options if I have fallen behind on paying VAT?

If you have fallen behind on your VAT obligations and you cannot afford to repay the full amount you owe immediately, a Time to Pay Arrangement (TTP) may be suitable. A TTP lets a company settle its tax arrears through a series of monthly repayments rather than having to pay the whole amount at once.

These payment plans typically last no longer than 12 months and during this time you will have to keep up with your ongoing VAT and tax requirements in addition to the agreed repayment figure to cover your VAT arrears. Due to the sums involved this type of arrangement can be a great way for a company to recover from a temporary setback, however, if financial concerns are still present then the company may struggle to keep on top of the payments required to sustain such an arrangement.

Why Professional Guidance Can Help When Paying VAT Late

Unfortunately, there are a number of different problems a company may be experiencing when dealing with late VAT payments and HMRC isn’t always as forgiving as they should be or could be. Sometimes it is necessary to explain to them the circumstances which caused late filings or payments and there are very few reasons which they find acceptable.

For example, a fire resulting in the loss of all the company’s records would likely be just cause, but barring any catastrophic event, HMRC expects payment when it is due. A licensed insolvency practitioner can often intervene on your behalf to provide a bit of extra time and liaise with HMRC on your behalf.

Alternatives to a Time to Pay

In instances where a TTP isn’t possible, perhaps through a lack of available funds or HMRC being unwilling to accept the payment plan proposed, a licensed insolvency practitioner will be able to talk you through the options which remain and recommend the most appropriate course of action.

This could involve a formal insolvency procedure to facilitate a turnaround of the company’s fortunes; this may be done through a process known as a Company Voluntary Arrangement (CVA). A CVA allows a company the opportunity to restructure its current liabilities and negotiate with creditors to come to a mutually beneficial arrangement which allows the company to continue trading while dealing with its debts in an affordable manner. All types of creditors can be incorporated into a CVA, including HMRC, meaning VAT arrears will be taken care of as part of the process.

Alternatively, access to a form of business funding could assist with your ongoing cash flow or provide the vital injection of finance needed to get your company back on track.

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Beware of Sending Up Red Flags

One of the reasons why it is so important to seek professional assistance if your company is unable to pay VAT on time is because this signals to HMRC that you may be trading insolvent. If HMRC believes this to be the case, they may look to start winding up action against your company to prevent further debts building by forcing you to stop trading.

Insolvency practitioners can help circumvent potential problems and put a robust plan in place before the situation escalates out of control. Whether you want to do everything possible to save your company, or look at ways of closing it down in an orderly manner, Real Business Rescue can help. Our nationwide team of licensed insolvency practitioners are on hand to provide to expert help and advice you need to make the best decision for you and your company going forwards. Call today to arrange a free no-obligation consultation.

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