New VAT penalty regime deferred to January 2023

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The VAT default surcharge was due to be replaced by new late submission and payment penalties and interest charges from April 2022. The introduction of the new regime has been deferred to January 2023 to allow HMRC more time to make the necessary systems changes.

In a written ministerial statement, the Financial Secretary to the Treasury has announced that changes to the interest and penalty rules for VAT will be introduced from January 2023 rather than April 2022.

The changes will replace default surcharge with:

Points- based penalties for late submission;
Interest charges; and
Late payment penalties.

ICAEW’s Tax Faculty is developing a webinar and other support material for members. These will now be made available in the Autumn.

ICAEW understands that the policy remains unchanged and that the delay is to allow sufficient time for necessary changes to be made to HMRC’s systems.

The deferral brings with it the considerable benefit that the changes are now decoupled from the extension of Making Tax Digital (MTD) for VAT from April 2022.

The penalty rules will also extend to income tax self assessment (ITSA) in the future. The start date is still expected to be the 2024/25 tax year for those mandated for MTD ITSA from that date and from 2025/26 for all other ITSA taxpayers.

No legislation is required to change the start date as the appointed day orders for penalty reform have not been laid.

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