Small businesses across the UK need to be aware of the VAT penalty reforms introduced by HMRC. These changes aim to create a fairer system but could have significant implications for businesses that miss deadlines or fail to comply with VAT requirements.
What Are the Changes?
Starting from 2025/2026, HMRC has introduced a points-based penalty system for VAT submissions, replacing the old default surcharge system. Here’s how it works:
- Points for Late Submissions:
Each missed VAT submission results in a point. - Threshold for Penalties:
When you reach a set number of points, a financial penalty of £200 is triggered. - Resetting Points:
Points reset to zero after a period of compliance.
Key Points Threshold
- Annual VAT Returns: 2 points.
- Quarterly VAT Returns: 4 points.
- Monthly VAT Returns: 5 points.
Impact on Small Businesses
- Stricter Compliance Needed: Even one missed deadline could accumulate points quickly, leading to penalties.
- Cash Flow Challenges: For small businesses already managing tight margins, a £200 penalty could disrupt finances.
- Opportunities to Reset: Complying consistently for a set period allows you to reset points, giving businesses a second chance.
How to Prepare
- Set Up Reminders: Use software like Xero or QuickBooks to automate VAT submission reminders.
- Check Deadlines Regularly: Ensure you’re aware of your submission schedule, especially for quarterly returns.
- Hire Professional Support: An accountant can manage your VAT submissions, ensuring compliance and avoiding penalties.
How Supreme Consultants Can Help
At Supreme Consultants, we provide tailored VAT compliance services for small businesses. From submission reminders to full VAT management, we ensure you stay penalty-free and focus on growing your business.
Contact us today for a free consultation!