VAT penalty overhaul confirmed for 2022
The 2021 Budget confirmed that the government is pressing ahead with a change to the way penalties for VAT returns filed late will be charged. What’s happening?
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Accounting for VAT if there is no cash payment
Your business has submitted repayment returns for the last two quarters and you are concerned that you might have underpaid output tax on some supplies where no money has changed hands. Are your concerns justified?
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Treatment of distributions under review
The government has launched a consultation on modernising the tax treatment of distributions and repayments of capital by companies. The proposals could affect the distinction between dividends taxed as income and capital payments subject to CGT. What changes are being considered?
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Tax relief on equipment you haven’t paid for (yet)
The timing of tax relief for purchases of equipment isn’t straightforward when payments are delayed or goods are purchased through hire purchase (HP) agreements. How can you use these rules to your advantage and get tax relief before you’ve paid the final invoice?
Currently, penalties for late filing of VAT returns and late payment of VAT are dealt with under the default surcharge regime. This means that where either a return is filed late, or a payment is received late, the business receives a surcharge notice. They are then “on notice” for twelve months, with further defaults penalised by a charge calculated by reference to the tax due. There are several perceived faults with this system. Firstly, a business can avoid a charge for late filing by paying the VAT due in full. Secondly, there is no difference in the level of penalty for a return or payment made one day late compared with one made months late. But all that will change from 1 April 2022.
From that date, there will be separate penalties charged for late filing and late payment. Additionally, the penalties will increase in stages – punishing those who file or pay significantly later more than those who miss deadlines by a few days. A key feature of the new system is that it will no longer be possible to avoid a late filing penalty if the VAT is paid on time, or if the return shows a repayment is due.
Full details of the announcement can be found here.
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