Farms and Estates update: Beware of the new VAT penalty regime

Most farming businesses are VAT registered; many receive regular VAT repayments and as such have not had to pay any penalties for submitting returns late as penalties have previously only been payable when VAT due is paid late. For VAT periods starting on or after 1 January 2023 the penalty regime is changing.

The penalty systems for late returns and late payments are very separate. So, a business should always submit its returns on time, even if it cannot fully pay the tax that is owed by the due date.

There is no financial penalty for the first late submission, but a late filing will lead to HMRC issuing a penalty point notice. The number of points which can be accumulated before a financial penalty is levied will depend on the frequency that returns are submitted. These are as follows:

  • Monthly returns – threshold is five
  • Quarterly returns – threshold is four
  • Annual returns – threshold is two

The thresholds mean that the earliest date for any late return penalty will be 7 July 2023. This will be issued to a business that submits late monthly returns from January to May 2023 reaching its threshold of five the latter period having a submission date of 7 July.

For a business submitting quarterly returns, the earliest penalty date will be 7 February 2024, when four calendar quarter returns in 2023 have all been submitted late; 7 February 2024 is the due date for the December 2023 return.

After the threshold has been reached, the business will incur a £200 penalty for each late return. There is also no relief for dormant entities, therefore, it will be necessary for nil returns to also be submitted on time.

Once a business has reached the threshold it will be possible to return to zero points provided two conditions are met:

  1. All returns for the previous 24 months have been filed (although not necessarily on time); and
  2. The business must have submitted all returns on time for a set period after reaching the relevant points threshold. The period is:
    1. 6 months for monthly returns.
    2. 12 months for quarterly returns.
    3. 24 months for annual returns.

The new regime is set to penalise the persistent offender, rather than those making the occasional late submission. Plan ahead, and make sure your business is not subjected to unwanted penalty charges.

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