VAT penalty and interest reform delayed

Planned reforms of the VAT penalty and interest regimes for late filing and payment, which were originally due to take effect from April this year, will now be delayed until 1 January 2023.

The announcement was made in a Written Ministerial Statement published on 13 January.   This states:

"In Finance Act 2021, the Government legislated to reform penalties for late submission and late payment of tax, initially from 1 April 2022,  and to align interest charges for VAT with other major taxes.

Today, I am announcing that these changes for VAT businesses  will now be introduced 9 months later, on 1 January 2023.

HMRC is committed to becoming one of the most digitally advanced tax authorities in the world. The ambition and pace of change needs to be balanced with  well-tested systems and  good customer service, particularly when businesses are facing additional challenges and uncertainty.

This  extra  time allows HMRC to ensure the IT changes necessary for the new penalties and interest charges can be introduced as effectively as possible,  ensuring a high standard of service to customers."

The existing default surcharge rules will continue to apply in the meantime. We understand that the extension of the new regime to ITSA is still intended to take place as originally planned (i.e. from April  2024 for MTD taxpayers, and April 2025 for all other taxpayers in ITSA).

We will continue to engage with HMRC regarding this reform and the practical implication of the delay, including the impact on those voluntary registered businesses who will be brought within MTD for the first time from April this year.

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