VAT update: new penalty regime for late returns and/ or payments

Published by Colin Laidlaw on 16 May 2023

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Clients are reminded that a new penalty regime for late returns and payment was introduced on 1 January 2023 for returns starting on or after this date.

This replaces the old system which was thought by many to be harsh as the penalties bore no relation to the length of delay.  This new system is a fairer system with penalties being based on the length of time a payment is late rather than a fixed penalty.

This is discussed in our article here.

Key points to note are:

  • Late returns and late payment will incur separate penalties.
  • Any late return will now potentially be penalised (once a points threshold has been met) – previously only payment returns incurred penalties.
  • Late payments will be charged interest on a daily basis.
  • Further penalties will be due for payments more than 15 and 30 days late.
  • Any late payment of repayment returns by HMRC will also attract interest.


HMRC delays

We are seeing very slow responses from HMRC on most aspects of VAT systems and processes.  In some cases HMRC have not responded to letters (emails) from us or clients for over a year (and worse).

There is often very little we can do to make HMRC act quicker so, if you are planning a change to your business and need to interact with HMRC, the earlier you can start the process, the better.

Please do talk to us to discuss the impact the HMRC delays may have on your business.


Option to Tax changes

Land and buildings are normally exempt from VAT but for commercial property or land a taxpayer can choose to charge VAT by exercising what is known as the “Option to tax” (OTT).  There have been some changes to how these are being dealt with by HMRC

This is discussed in our article here, but the key points are:

  • HMRC will no longer acknowledge an option to tax.
  • Evidence should be kept of the submission of the form to HMRC (as proof that it has been notified) – ideally these should be sent to HMRC’s email address which will provide an automatic response.
  • HMRC will not provide details of properties that they hold an option to tax for as a matter of course.

It is more important therefore that an option to tax has been validly exercised and submitted and professional advice should be sought in cases of doubt.


If you have any questions related to this update or would like further information or guidance, please contact us today.

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