VAT penalty reforms

HM Revenue & Customs (HMRC) has updated its notice on penalty reform CH192420, which means that in certain circumstances where a customer goes through an insolvency process, they may not be charged a late submission penalty.

The rules currently only apply to VAT for VAT periods starting on or after 1 January 2023 and will come into force for other tax regimes at a future date. Customers should check the date from which these rules apply for the tax or duty they are dealing with.

According to the update, once a customer record has been flagged to show that a person is going through an insolvency process, no further late submission penalty points would be awarded, and no further financial penalties would be assessed in relation to periods included in the insolvency.

Any penalty points or financial penalties which had been awarded/assessed after the relevant date will be cancelled. The relevant date is the date up to which claims by creditors against the insolvent entity are calculated.

For periods following the insolvency, the penalty points total will be reset to zero before the first submission due date relating to a period starting after the relevant date. This means that someone going through an insolvency process is able to start again with a “clean slate”.

However, where someone has continuing submission obligations after an insolvency date, late submission penalty points and financial penalties will be awarded or assessed in line with the normal process. This applies even if an insolvency practitioner has been appointed.

For help and advice on related matters, please contact our Insolvency Director and Appointment Taker, Richard Warwick, today.

Posted in Blog.