HMRC's points-based penalty system applies to VAT returns for periods starting on or after 1 January 2023. It is designed to punish repeated lateness rather than a one-off slip, but the penalties add up quickly once you reach the threshold.
Late submission: penalty points
Every VAT return you submit late earns one penalty point. That includes nil returns and returns where HMRC owes you money. Once you reach the points threshold for your filing frequency, HMRC charges a £200 penalty, and a further £200 for every late return after that.
| How often you file | Points threshold |
|---|---|
| Annually | 2 points |
| Quarterly | 4 points |
| Monthly | 5 points |
How points expire
Below the threshold, each point usually expires after 24 months. Once you reach the threshold, your points are only reset to zero after a period of compliance: every return filed on time for 12 months if you file quarterly (6 months monthly, 24 months annually), and all returns due in the previous 24 months submitted.
Late payment: penalties and interest
Paying late is treated separately from filing late. For VAT periods from April 2025:
- Up to 15 days late: no penalty, provided the tax is paid or a payment plan is agreed.
- From day 16: a first penalty of 3% of the VAT outstanding at day 15.
- From day 31: a further 3% of the VAT outstanding at day 30, plus a second penalty charged daily at 10% a year until the balance is paid.
On top of any penalties, HMRC charges late payment interest at the Bank of England base rate plus 4%, from the day after the due date until you pay.
Cash flow tight? Contact HMRC before the deadline. Agreeing a Time to Pay arrangement early can stop late payment penalties from building up.
Five ways to stay clear of penalties
- Know your VAT deadlines. Most quarterly returns and payments are due one calendar month and seven days after the period ends.
- Reconcile your bank accounts monthly, so the return is ready soon after the quarter closes.
- Pay by Direct Debit, so payment is taken automatically a few days after the deadline.
- Keep your MTD software and HMRC authorisation up to date, to avoid last-minute filing problems.
- Hand your VAT to a bookkeeper who prepares returns well ahead of the deadline.
How OBE Financial Services can help
We prepare your VAT return from fully reconciled records, send it to you for approval and submit it to HMRC under Making Tax Digital, comfortably before the deadline.
This article is general information for UK businesses, correct at the date of publication. It is not tax or legal advice. Rules and rates change, so check the latest guidance on GOV.UK or speak to us about your circumstances.