New VAT penalty regime to be introduced from April 2022

A new VAT penalty regime is due to be introduced for VAT return periods beginning on or after 1 April 2022, bringing VAT more closely in line with existing penalties which apply to direct tax returns.

What is the current regime?

There is currently no standalone late submission penalty for VAT, instead, the Default Surcharge applies, which combines a late submission and late payment sanction. On the first late return, the taxpayer will receive a Surcharge Liability Notice (SLN) which lasts for 12 months. If further defaults occur, the SLN period extends and penalties of up to 15% of the tax due are levied, dependant on the number of defaults and the annual turnover of the business.

The new VAT penalty regime

The new regime introduces updated late submission and payment penalties which are detailed below.

Late submission penalties

The regime introduces a ‘standalone’ late submission penalty using a points-based system, depending on how often the VAT return is submitted. The new system has been designed to penalise those who frequently file late and offer leniency to those who make the occasional late submission; thus the new system has been adopted to make the penalty system fairer.

Points will be received for each late filing and when the threshold is reached, the taxpayer will receive a fixed financial penalty of £200. For every deadline missed whilst over the threshold, a further £200 penalty will be issued.

The points threshold is dependent on the taxpayer’s submission frequency:

Submission frequency Points
Annually2 points
Quarterly4 points
Monthly5 points

 

The penalty points will expire after 24 months if the taxpayer remains below the threshold in this time period.

After the points threshold has been reached, and the taxpayer has met all of their return obligations for a set period of time dependant on their return frequency (see table below), the points will expire.

Submission frequency Time period
Annually24 months
Quarterly12 months
Monthly6 months

 

Late payment penalties

The new regime introduces a two-part penalty system for late payments

The first of which will be payable 30 days after the payment due date and will be based on a percentage of the balance outstanding. The charge received will be dependent on the payments which may have been made/agreed during the first 30 days.

Days after payment due date Action by taxpayer Penalty
0-15Payments made or taxpayer proposes a ‘time to pay’ which is agreedNo penalty payable
16-30Payments made or taxpayer proposes a ‘time to pay’ that is agreedPenalty will be calculated at half the full percentage rate (2%)
Day 30No payment or ‘time to pay’ agreement has been madePenalty will be calculated at the full percentage rate (4%)

 

The second charge, an additional 4% p.a., will also become payable from day 31 and will accrue on a daily basis, based on the outstanding balance. If a ‘time to pay’ is agreed, the penalty will stop accruing from the date the proposal is submitted by the taxpayer.

For more information on the new VAT penalty regime, visit the Gov.uk website here.

Get in touch 

As with any new system, there could be teething problems and we would advise all businesses to take advice if they believe a surcharge has been issued or calculated incorrectly. If you want to discuss the new penalty VAT regime in more detail and how it may affect your business, please get in touch with Andy Kirkaldy by using the button below.

EU to launch VAT One-Stop-Shop in July 2021

The European Commission has confirmed that new European VAT rules for business-to-consumer (B2C) transactions will come into force on 1 July 2021. From this date, B2C sellers that dispatch their goods from a single country under delivery terms that result in the seller being the Importer of Record (IoR), will no longer be required to obtain multiple foreign VAT registrations and file consequent VAT returns in the countries in which they are selling too.

The new rules form part of the EU’s new e-commerce package, which was originally due to come into force on 1 January 2021 but was postponed due to the challenges created by the Coronavirus pandemic. The main aim of the package is to simplify VAT obligations for companies who carry out cross-border sales of goods and certain services (mainly online) to consumers. This is being introduced to ensure that VAT is correctly paid to the Member State in which the supply takes place.

What are the current EU rules?

Currently, businesses from outside of the EU are (typically) required to register for VAT in each Member State to which they supply goods or services when a given threshold is exceeded. For goods, the thresholds range from €35,000 to €100,000 and vary between countries.

Businesses who offer B2C digital services are already able to use the Mini One-Stop-Shop (MOSS) to declare VAT due on supplies in a single quarterly VAT return by registering in just one EU member state.

However, currently, there is not a declarative system for those selling physical goods. This means that goods imported from non-EU countries with a value above €22 (£15), where the seller is the IoR, must register in each EU member state and make the appropriate declarations.

What are the new EU rules which will be introduced from 1 July?

From 1 July 2021, the EU are removing distance-selling thresholds and introducing a similar One-Stop-Shop (OSS) for B2C suppliers of all goods and certain services, where stocks are held in an EU member state.

For businesses importing goods from outside the EU, a new Import One-Stop-Shop (IOSS) will become available for sales of goods under €150. This will allow online businesses to report all their sales of goods to consumers across Europe in a single, consolidated VAT return which is submitted in the country of establishment.

HMRC’s IOSS system is not expected to be operational by 1 July, therefore a GB business may have to register for the IOSS in an EU member state. To do so, at the time of writing, an EU intermediary will be required to assist in registration.

For businesses who sell goods under €150 via a 3rd party Online Marketplace (OMP), such as Amazon, the OMP will be responsible for the collection of the VAT due in the country of destination.

Lastly, for GB sellers of goods over €150 to EU member states where stock is held outside the EU, you will still need to register in the relevant EU member states as appropriate. To read more on the EU VAT e-commerce package, visit the EU website here.

Get in touch

The new VAT rules are far-reaching and will have a wide impact, not only for traders within the EU, but also for non-established businesses (including businesses established in GB) selling goods to EU consumers on a distance sales basis.

EU and non-EU businesses will need to consider the new rules and understand the impact. With only a few weeks to go until the new rules are introduced on 1 July 2021, businesses need to start preparing for these changes now.

If you want to discuss the changes to EU VAT rules in more detail and how they will affect your business, please contact Andy Kirkaldy using the button below.