CH192420 - Penalty reform - penalties for failing to file VAT returns by the due date for periods from 1 January 2023: other penalty issues: insolvency

NB: “These rules currently only apply to VAT for VAT periods starting on or after 1 January 2023. These rules will come into force for other tax regimes at a future date. You must check the date from which these rules apply for the tax or duty you are dealing with”  

In certain circumstances where a customer goes through an insolvency process, we may not charge a late submission penalty. 

Periods included in the insolvency 

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 see the Insolvency Technical Library

This help card also provides the relevant legislation in relation to the relevant date.

Guidance on insolvency can be found at VAT notice 700/56 types of insolvency

Note: HMRC updated this guidance on 21 March 2024 to remove content relating to resetting the penalty points total to zero following an insolvency. HMRC is currently considering how accrued late submission penalty points should be treated for the post-insolvency periods.   

Periods following the insolvency 

Where a person has continuing submission obligations, for periods starting after the relevant 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. 

Insolvencies which end prematurely 

It is possible for insolvencies to end prematurely, for example, because a bankruptcy is annulled, rescinded or recalled. 

If the insolvency flag on the customer record had resulted in penalty points not being awarded, or financial penalties not being assessed, these would be awarded/assessed once HMRC became aware of the premature end to the insolvency. This is subject to the assessing time limits at CH192180 and CH192320. 

Glossary of Insolvency terms