Brought to you by
Futrli by Sage logo
Futrli by Sage offer prediction software solutions for both small businesses and accountants. Let...
Save content
Have you found this content useful? Use the button above to save it to your profile.

Avoid new late VAT payment penalties!

13th Feb 2023
Brought to you by
Futrli by Sage logo
Futrli by Sage offer prediction software solutions for both small businesses and accountants. Let...
Save content
Have you found this content useful? Use the button above to save it to your profile.

Most accountants are blessed with (mainly) good clients, but everyone has a few two-thousand-receipts-in-a-shoebox clients and the odd late-filer. This year, tax season was made even spookier with the introduction of new late VAT penalties. Understand the new law changes, and see the easy steps we can take to keep your clients on the right side of HMRC.

Avoid new late VAT payment penalties | Futrli by Sage | image of a calculator displaying the words "tax penalty"
Shutterstock

What’s changed?

Kicking the year off on 1st January 2023, HMRC have introduced a new penalty and interest scheme to be rolled out for the late filing and late payment of VAT. This represents a real departure from the pre-existing default surcharge regime.

Just say I was to pay late… How does it work?

The new penalties system replaces the default surcharges for VAT periods starting on or after 1st January 2023. Any VAT due in respect of periods starting before 1st January 2023 will continue to fall within the pre-existing surcharge rules, irrespective of when it is paid.

Under new rules, there are two separate late-payment penalties. There are fixed penalties and daily penalties. In short, the later the payment, the higher the rate of penalty charged.

Payments that are up to 15 days late will not incur a penalty.

Payments made between day 16 and day 30 will incur a penalty of 2% of the amount outstanding on day 15. However! To accommodate for this adjustment, HMRC will not apply this rule until 2024 unless payments are more than 30 days late.

Payments that are 30 days late or more will trigger a 2% penalty against the amount outstanding on day 15 plus an additional 2% penalty calculated on the amount outstanding on day 30. For example, if by day 30 you haven’t paid anything yet, a total penalty of 4% would be levied.

From day 31, a daily penalty comes into effect. This is worked out differently based on an annual rate of 4% of any outstanding amount.

In a nutshell… What are the biggest changes?

  • No late penalty IF paid within the first 15 days of the due date.
  • A period of familiarisation ensures that HMRC will not charge the first instance of a penalty (2% from day 15), from 1st January 2023 to 31st December 2023.
  • The way that interest is applied to late penalties and repayments of VAT has also changed since 1st January. It is now more in line with other taxes. For the most up-to-date info, it is best to refer to information provided by HMRC.

How do we avoid late payments?

No one wants to hear… “Well just get your clients to pay on time?” Oh, if only it were that simple!

That said, there are ways that we can better prepare clients for a year where avoiding unnecessary penalties is important. Even a small penalty can have significant consequences as we navigate what is set to be one of the toughest years for small businesses.

Here are three ways to ensure that your clients avoid any late VAT penalties:

  • Make the most of new MTD check-ins. You likely see more of your clients since the steady rollout of MTD. With the expansion of MTD for ITSA from 2026, clients will have to check in four times a year instead of annually. While MTD has ruffled feathers, growing engagement with clients helps ensure that problems that used to only be picked up once a year are nipped in the bud.
  • Explore advisory offerings. Increased client interaction due to MTD offer prime opportunities to discuss your advisory offering. If clients are struggling with their tax calendar, this could present your firm with the prospect of stepping in to help.
  • Use VAT forecasting tools. Sometimes paying VAT can come as a shock for clients encountering cash flow problems. Futrli’s three-way forecasting resolves these issues by using algorithm-driven predictions that process all your clients’ financials to work out not only how much VAT they have to pay, but how much cash they will have to pay it. As a scalable solution that can be rolled out with ease across your client base, you can expect to see your clients grow more prepared and resilient for tax payments in the future.

Forecast your clients’ tax and cash flow in Futrli to save everyone from unwanted VAT-shaped surprises. Start a free 14 day trial and make late VAT payments last year's problem.

Book a demo today