With many tax and compliance updates coming into play this year, we’ve provided a roundup of the changes you should expect to see in the coming months.
New VAT Penalty System
A new penalty system will be put in place for VAT returns starting January 2023. HMRC are introducing a new system for late VAT return submissions, which is intended to be fairer for those who occasionally miss deadlines, but cracks down on those ‘repeat offenders’!
This new points-based regime is designed to be proportionate, penalising only the small minority who persistently miss their submission obligations rather than those who make occasional mistakes.
Taxpayers will no longer receive an automatic financial penalty if they fail to meet a submission deadline. Instead, they will incur a certain number of points before a financial penalty is imposed.
Taxpayers will receive a point every time they miss a submission deadline and will be notified by HMRC for each point incurred. At a certain threshold of points, a financial penalty of £200 will be charged and the taxpayer will be notified. The threshold is determined by how often a taxpayer is required to make their submission.
When a taxpayer has reached the relevant threshold, as determined by their submission frequency, a penalty will be charged for that failure and every subsequent failure to make a submission on time, but their points total will not increase. Points will expire after 2 years, as long as the taxpayer is not at the penalty threshold.
Below are the various penalty thresholds that have been set by HMRC:
Submission Frequency
Annual – 2 points
Quarterly (including MTD for ITSA) – 4 points
Monthly – 5 points
Extension for Making Tax Digital VAT
From 1st April 2022, the MTD VAT requirements are to be extended for all VAT registered businesses and individuals. Previously those with taxable turnover below the VAT threshold of £85,000 were exempt from MTD.
These changes will apply to around 1.1 million VAT Registered businesses with taxable turnover below the current VAT threshold. About 25% of these business have already voluntarily chosen to join MTD, which HMRC says demonstrates that a modern digital approach to managing tax can work for businesses of every size.
Return to 20% VAT Rate for Tourism, Hospitality and Leisure
Due to the pandemic and subsequent lockdowns, businesses within the hospitality industry were able to benefit from reduced rates of VAT (5% then increasing to 12.5%), however this is coming to an end on 31st March 2022. Therefore from 1st April 2022, this amount will increase back up to the standard rate of 20%.
