VAT Debt & Fines

VAT late filing penalties

New rules were introduced  on 1 January 2023, for each VAT return submitted late, you'll receive a penalty point until you reach the penalty point threshold:

- Annual VAT returns        2 points

- Quarterly VAT returns    4 points

- Monthly VAT returns      5 points

Once the relevant penalty threshold above has been reached, the VAT registered business will receive a £200 penalty. Although no further penalty points will be added, an additional £200 penalty will be charged for each subsequent late submission. 

No late payment penalty will be charged where the VAT is paid within 14 days of the due date.

NB. To allow VAT registered businesses to become familiar with the new regime, HMRC has advised that it will not charge a first late payment penalty during 2023, provided that businesses pay in full within 30 days of the payment due date.

While you remain at your penalty threshold level, HMRC can also charge you further financial penalties for any late submissions that follow. 

If you have missed the deadline for submitting your VAT return, get your return up to date as soon as you can. Also try to submit your future returns on time. This will help to limit the financial penalties that HMRC can add to the debt.

Late interest payments

HMRC withdrew repayment supplement for VAT return periods beginning on or after 1 January 2023. HMRC will instead pay repayment interest from the day after the due date or the date of submission (whichever date is later) until the repayment is made. This will be at a rate of the Bank of England base rate minus 1%, subject to a minimum rate of 0.5%.

Consequences of non-payment

If you owe Value Added Tax (VAT) to HM Revenue and Customs (HMRC) , and fail to pay or arrange a payment plan, they can take the following recovery actions:

1. Seizing goods: HMRC can seize goods belonging to your business to sell at auction to recover the amount of VAT owed. Enforcement agents (bailiffs) can visit your premises to  take certain goods in repayment of the debt. 
   
   

2. Issuing a County Court Judgment (CCJ): HMRC can apply to the court for a CCJ against you, which will damage your credit rating and make it difficult to obtain credit in the future.
   
   

3. Taking legal action: HMRC can take legal action to wind up your business if you owe a large amount of VAT and fail to pay or arrange a payment plan. This could lead to your business being liquidated or made bankrupt and the assets being sold to pay off the debt.
   
   

4. Imposing penalties: If you are late paying your VAT, HMRC can impose penalty charges.
   
   

5. Late payment interest: If you do not pay your VAT on time, HMRC can charge you interest on the amount owed.

It is important to take action as soon as you realise that you owe VAT to HMRC, to avoid any additional penalties or enforcement action. You should contact HMRC as soon as possible to discuss payment options and seek advice if necessary.

Options for VAT debt

1. Seek debt advice: If you are struggling with debt, it can be helpful to seek the advice of a business adviser or debt adviser. They can help you understand your options and create a plan to manage your debts.
   
   

2. Negotiate a time to pay plan: If you are unable to repay your VAT debt n in full, you may be able to negotiate a time to pay plan with HMRC. This could involve making reduced repayments over an extended period of time. You may be told you must pay your VAT debt back over 6 - 12 months.
   
   

3. Consider insolvency proceedings: If you are unable to pay your VAT debt and other debts, you may need to consider insolvency proceedings. This could involve entering into an individual voluntary arrangement (IVA) or filing for bankruptcy for sole traders and partnerships or Voluntary Liquidation or business rescue options for limited companies. If you owe a lot of VAT debt, HMRC could be a controlling voting creditor in an IVA or CVA and proposals may be refused as a consequence.