VAT Penalties and Interest Charges

On 1st January 2023, changes were made to fines for late VAT filing and payments. Previously, the default VAT surcharge system was in place. This system meant that you would be fined a percentage of the VAT owed. This started at 2%, then increasing to 5%, 10%, and 15% every time a payment or VAT return was missed.

The new system implements a point system for late submissions, as well as new penalties and interest charges on late payments.

Late Filing Points System

The late filing point system works on the basis that every time VAT is submitted late, you will receive a penalty point. Once the penalty Point threshold is reached, a £200 penalty is applied. A further £200 penalty is issued for every late submission whilst at the threshold. The threshold is dependent on how frequently you submit your VAT return:

Accounting PeriodPenalty Points Threshold
Annually2
Quarterly4
Monthly5

HMRC will adjust both the threshold and the points you have been issued if you change your accounting period.

The penalty rules do not apply to the first VAT return, final VAT return, or one-off returns which cover a period other than those listed in the table above.

HMRC will issue a penalty decision letter to your registered business address if a penalty or penalty point has been given. This letter will offer a review with HMRC where you will be able to appeal the penalty. Also, penalties can be checked, and reviews can be requested through your VAT online account.

Late Payment Penalties

Late payment penalties have been introduced and can apply to any VAT that has not been paid in full by the due date. This is excluding payments on account and annual accounting scheme installments.  The penalty you will receive is dependent on both the number of days that the payment is overdue, and if it is your first penalty:

First Late Payment PenaltySecond Late Payment Penalty
Payments up to 15 days overdueNoneNone
Payments 16-30 days overdue2% of the VAT owed at day 15None
Payments 31 days or more overdue2% of what was outstanding at day 15.
Plus 2% of what is still outstanding at day 30.		Daily rate of 4% per year on the outstanding balance.
This is charged from day 31 until the outstanding balance is paid in full.

A period of familiarisation has been implemented until 31/12/2023. This means that first late penalties will not take effect if a payment is made within 30 days of the payment due date.

Much like the late filing penalties, HMRC will notify you of a late payment penalty via a penalty decision letter and details of the penalty will be available through your VAT online account.

Late Payment Interest

Late payment interest will now be applied from the first day that a VAT payment is overdue until the day it is paid in full. The interest rate directly correlates with the Bank of England’s base rate. It is calculated as the base rate plus 2.50%. This means that the current interest rate is 7.75%.

Payments that are subject to interest include:

  • VAT Returns
  • Corrections and Amendments
  • HMRC VAT Assessments
  • Missed Payments on Account
  • Late payment penalties
  • Late submission penalties

If interest is being applied to an amount which should be paid in installments, the interest will be charged on the outstanding balance until the tax has been paid in full.

Unfortunately, HMRC does not have an appeals process for late payment interest. However, you can object to the interest for a variety of reasons, such as, you believe HMRC has caused a mistake or there has been any unreasonable delay, you dispute the relevant date or effective date of payment, or you are questioning the legislation. It is important to note that interest objections can only be accepted if the tax relating to the interest has been fully paid. To discuss interest objections with HMRC, contact the VAT General Inquiries Helpline.

VAT Repayment Interest

On the other hand, if you are owed a VAT repayment from HMRC will also be applied. Like the late payment interest, the interest rate is dependent on the Bank of England’s base rate. It is calculated as the base rate minus 1%; the rate is currently 4.25%. Interest will not be applied on early payments or payments made in error (such as paying £2,500 instead of £250).

If the VAT has already been paid to HMRC, the repayment interest is calculated from the later date of either when the VAT was paid or the payment deadline for the period.

If the VAT has not been paid to HMRC, the repayment interest is calculated from the day after the later date of either the payment deadline or when the VAT was submitted.

HMRC will only pay repayment interest if there are no outstanding VAT returns. Because of this, the interest will only be paid from the date that all outstanding VAT returns are received.

The end date for the interest will be when HMRC repays the VAT, or it is set off against a different VAT return. It can also be set off against other types of tax you may owe.

If You Cannot Pay

If you are aware that you will not be able to pay your VAT in full by a deadline, call HMRC’s Payment Support Service for guidance. They have a specific line relating to VAT payments. One option they may propose is a payment plan. You can find out what you will be asked during the set up process, or if you can set up a payment plan online, here. Setting up a payment plan could lead to penalties being reduced.

HMRC offer a flexible plan known as a Time to Pay arrangement which will cover any penalties and interest that has been applied. If this arrangement is put in place before a penalty deadline, the penalties will not be applied. However, if you do not adhere to the conditions of the arrangement and it is cancelled, the penalties will be applied. You can find out more about Time to Pay here.

Contact Us

If you require our services for VAT, or have any further questions regarding your accounts, please do not hesitate to contact us.

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Student Loan Changes 2023

Last year, the government announced several significant changes to student loan plans. You may have noticed that your own loan deductions have changed since April 2023, or that a new plan will be implemented for this year’s students. In this blog we discuss how these updates will affect you.

Current Student Loan Schemes

Currently, there are four student loan repayment schemes. The scheme you pay through is dependent on criteria such as the country where you are based and when you started your studies. The current schemes are:

  • Plan 1 – Applies to all students, UK-wide, whose loans were taken before September 2012.
  • Plan 2 – Applies to English and Welsh borrowers from September 2012.
  • Plan 4 – Student Award Agency Scotland Loans
  • PGL – Postgraduate loans for England and Wales (PGL can also be called Plan 3)

You will only make repayments when your rate of pay passes the annual threshold. This, and the rate of deduction, is dependent on your loan scheme. The thresholds applied from April 2023 are in the table below:

Loan PlanPrevious Annual ThresholdAnnual Threshold from April 2023Rate of Deduction
1£20,195£22,0159%
2£27,295£27,2959%
4£25,375£27,6609%
PGL£21,000£21,0006%

Plan 5

A new student loan scheme called Plan 5 will be introduced for English individuals taking student loans from 1st August 2023, in place of Plan 2. The deduction rate shall remain at 9% of pay, but the threshold shall fall to £25,000 per year. This works out to £2083 per month, or £480 per week. This threshold shall remain until April 2028, after which it shall increase in line with the retail price index. This scheme will also increase the repayment period so that loans will be cleared after 40 years, rather than the usual 30.

Students on Plan 5 will not be expected to make payments until April 2026 at the earliest. This includes students who leave their courses early. The scheme will only apply to English borrowers as Welsh students shall remain on Plan 2.

Example:

If you were paid a salary of £26,000, you would only need to repay the 9% on the £1000 exceeding the threshold. This equates to £90 per year. If your salary was £30,000, you would be paying £450 per year.

By using this rule of £90 to pay per £1000 over the threshold you will be able to predict the contributions you are due to pay per year.

How are Student Loans Paid?

If you are employed, repayments are taken from your salary by your employer, much like tax and National Insurance. The amount deducted per pay period will be displayed on your payslips.

If you are employed but also complete a tax return you must include the total amount paid during the tax year. This figure will be reflected on a P60.

If you are self-employed the amount you owe will be calculated and included on your Self Assessment, and you will pay the amount at the same time as your tax. The figure can either be calculated before submission by your accountant, or by HMRC once it is submitted.

If you are self-employed and in need of advice, or if you are unsure if you need to complete a Self Assessment, please review the information on our page.

How to Apply for Student Loans

HMRC offer a step-by-step guide on applying for student loans. It will allow you to check if you are eligible and how large your loan can be. It also gives advice on reapplying during your study (which must be done each year of your course) and what happens with payments once you leave education. This guide can be found here.

FAQs

  • “Will my student loan go on my credit file?” – No, it doesn’t. This means that taking out student loans will not affect your ability to apply for a mortgage, for example.
  • “Is there interest on my loan?” – Yes, for Plan 5 loans the interest rate will be set at the rate of inflation for the current year.
  • “Does how much I owe on my loan affect how much I pay?” – No, as the amount you pay is solely related to your earnings. The remaining balance is not a factor.
  • “Can I make additional payments towards the loan?” – Yes. Additional payments can be made at any time during the repayment period; however, these payments cannot be refunded. You can find more information from HMRC here.
  • “Will I need to make repayments if I move abroad?” – Yes, you must still pay 9% on all earnings exceeding the currency equivalent of £25,000.
  • “When will I start repaying my student loan?” – If you are earning over the annual threshold, repayments will start the April after you leave university, but Plan 5 repayments will only start from April 2026.
  • “Are student loan contributions calculated before or after tax?” – Before tax. They are calculated the same way as National Insurance contributions.
  • “Will student loan repayments affect my pension contributions?” – The student loan repayment will be deducted before the pension contribution is calculated.

If you are usure of how your loan will affect your pay, please do not hesitate to contact us.

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September Mini Budget Breakdown

On 23rd September 2022, Chancellor of the Exchequer, Kwasi Kwarteng, announced a new growth plan.

This blog will provide a breakdown of the changes announced by the Chancellor and how they will impact you and your business.

 

Income Tax

The basic rate of income tax is set to receive its first cut in 15 years, reducing from 20% to 19%. This means that less tax will be applied to your non-dividend and non-saving income. This cut had been previously pledged by Rishi Sunak in the Spring but has been brought forward from 2024 to 6th April 2023. The government are currently estimating the average basic rate tax payers will save £130 per year.

 

When the growth plan was first announced, the decision was been made to scrap the 45% Additional Rate, which would have seen those earning more than £150,000 per annum being  charged at the current Higher Rate of 40% from April 2023. This has since been reviewed and, on 3rd October, a U-turn on the removal was announced; the 45% rate will now stay in place.

 

The 20% rate will stay in place for Gift Aid until April 2027.

 

Corporation Tax

The rate of corporation tax was initially expected to rise for companies with profits over £250,000 from 19% to 25% from April 2023. This increase has now been scrapped, meaning all companies will be paying at the 19% rate. The government hopes that this will encourage business owners to invest more into their companies, further improving and diversifying the UK economy.

 

National Insurance

At the beginning of the current tax year, National Insurance rates saw a 1.25% increase with the introduction of the Health & Social Care Levy. This aimed to increase funding for the worst affected sectors of the COVID-19 pandemic. It has now been announced that the levy will be reversed from 6th November 2022, and the National insurance rate will return to 12%. Plans to introduce the levy as a separate tax in the next tax year have also been scrapped.

This change will be reflected by a blended National Insurance rate on Self Assessments upon submission to ensure that the correct contribution is made.

This change will reduce the National Insurance bills of companies, giving a potential for further investments.

Dividends

Dividend tax rates will also fall by 1.25% in the next tax year following the removal of the Health & Social Care Levy.

 

Annual Investment Allowance

The Annual Investment Allowance (AIA) available to claim is set to permanently be £1,000,000. Plans had previously been put in place to reduce this to the previous amount of £200,000 in March 2023. AIA allows you claim 100% tax relief on assets up to the set amount. By having this as the higher amount, businesses will be able to claim more relief, reducing their tax.

 

Stamp Duty

Significant cuts to Stamp Duty have been announced, and all have come into effect as of midnight on 23rd September. Stamp duty is a form of tax applied when documents are recognized, most commonly through the purchase of houses.

The Nil Rate Band has doubled, increasing from £125,000 to £250,000, allowing more people to buy homes without paying any stamp duty. It is expected to save the average buyer £2500.

First-time home buyers will not have to pay stamp duty up to £425,000 and can claim relief on properties up to £625,000.

 

Additional Changes

  • Universal Credit Claimants who earn less than 15 hours per week at the National Living Wage will be required to meet with a Work Coach to help increase their earnings. Their benefits could be reduced if these meetings are ignored. Extra support will be offered to jobseekers over 50.
  • New legislation will be implemented to decrease planning and building times for new roads and energy infrastructure.
  • Changes in regulations on private investments are set to allow more funding from pension funds. This is expected to boost economic growth and see a particular increase in science and technology investment.
  • Alcohol duty will be frozen for another year and is expected to be reviewed and modernised.

 

It is expected that in the coming weeks, like with all changes in government, further plans will be announced, tackling issues like the reduction of childcare costs and the housing supply, as well as a review on digital infrastructure.

 

If you have any concerns regarding these changes and how they could impact you and your business, do not hesitate to contact us. You can find our contact information here.

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Dividends and Income Tax Changes April 2022

Changes to Dividends

As the new tax year begins, many changes will be made to reflect the current economic climate of the United Kingdom. One such change that shall come into effect from the 6th of April 2022 is a 1.25% increase in the Income Tax rates applied to dividends.

What are Dividends?

Dividends are the payments made out to the shareholders of a company, such as directors and investors. The dividends will come from the remaining value after the Corporation Tax that is due is taken from the total profit for the period. Because of this, the total dividends issued must not exceed the company’s profits from the current, or previous, periods.

Paying Dividends

The amount that each shareholder will be paid is dependent on the number of shares in the company that they hold. The dividends they receive will be proportional to their shares.

For dividends to be paid, a directors’ meeting must be held to the payment to be declared, even if the company only has one director, and a dividend voucher must be completed. The dividend voucher will include the date, the company name, the shareholder’s name, and the amount of dividend they will be paid. Dividends are usually paid quarterly but can also be paid in other installments such as annually or bi-annually.

Many companies will choose to pay their directors through a mix of both salary and dividends. This is because National Insurance contributions are not deducted from dividends; they are more tax efficient.

The New Income Tax Rates

The rise in Income Tax is being introduced as a part of a government scheme to increase funding for the health and social care sector, after it was hit hard by the pandemic over the last two years. Please view the table below to see how your tax rate will be impacted by the increase:

Tax Brackets Thresholds (£)

 

 Dividend Tax Rate
2021/22 2022/23
Personal Allowance

(If no other income)

 0 – 12,570 0% 0%
Basic-Rate 12,571 – 50,270 7.5% 8.75%
Higher-Rate 50,271 – 150,000 32.5% 33.75%
Additional-Rate Exceeding 150,000 38.1% 39.35%

The £2,000 dividends allowance introduced in April 2018 will still be available, meaning that any dividends within that amount will not be subjected to any tax deductions.

The government have predicted that the average loss that will be suffered because of the increase will be around £335 for those affected but has stated more than 50% of shareholders may not even need to pay any Income Tax on their dividends as they fall within the personal allowance or dividend allowance thresholds.

 

If you are interested in learning about the other changes brought in with the new tax year, please refer to our previous blog.

If you require assistance or any further information about how your dividends may be affected, please do not hesitate to contact us.

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