VAT Penalties
How VAT penalties work under the points-based system that started in January 2023, and how to avoid surcharges.
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VAT late filing penalties
Since January 2023, late VAT returns work on a points-based system. Here is how points accumulate and when they trigger a £200 penalty.
VAT late payment penalties
VAT late payment penalties stack from day 16, increase again from day 31, and can continue daily until the VAT is paid.
Late returns: points, then penalties
Each late VAT return earns one penalty point. Reach the threshold — four points on quarterly returns, five on monthly, two on annual — and HMRC charges £200, then another £200 for every further late return while you stay at the threshold.
Points expire after two years if you stay under the threshold; at the threshold, only a full clean streak resets them — twelve months of on-time returns for quarterly filers, with everything older also filed. Nil and repayment returns count: late is late regardless of the money.
Late payment: the 15-and-30-day structure
Pay within 15 days of the due date (or arrange Time to Pay within them): no penalty. Between 16 and 30 days: a first penalty accrues on the amount outstanding. Past 30 days: it doubles in weight, and a second, annualised penalty runs daily until payment. Interest runs from day one throughout, separately.
The whole regime is a speed incentive. The difference between day 14 and day 31 on a meaningful VAT bill is real money.
Inaccuracy penalties apply to VAT too
Errors on VAT returns fall under the same behaviour-based regime as other taxes: nothing for reasonable care, up to 30% of the understated VAT for carelessness, more for deliberate conduct — with large reductions for unprompted disclosure.
Small net errors within the limits can be corrected on the next return; bigger or deliberate ones need separate disclosure. Correcting your own errors promptly is the cheapest compliance work there is.
Appealing VAT penalties
Points and penalties both carry appeal rights — 30 days, in writing, on reasonable-excuse or factual grounds (the return was not late; the point was wrongly counted; the percentage was misapplied). The statutory review route and tribunal sit behind HMRC's first answer, as with any penalty.
For RR VAT clients this section is mostly academic: returns are prepared, reviewed, and filed inside the window through Deadline Lock, and the points ledger stays at zero — which is the only place it is worth keeping.
Frequently asked questions
How many late VAT returns before I'm fined?
On quarterly returns, the fourth late one triggers the first £200 penalty — and every late return after that is £200 more until a twelve-month clean streak resets the points. Monthly filers reach it at five points, annual at two.
Do penalty points expire?
Individual points expire after roughly two years — but only while you are below the threshold. Once at the threshold, expiry stops and only the full clean streak (plus all outstanding returns filed) clears the slate.
Is there a penalty if I file late but owe nothing?
A late nil or repayment return still earns a penalty point, and points are what convert into £200 charges. The filing regime looks only at timeliness, never the amount.
I paid 20 days late. What has it cost?
Daily interest from the due date, plus the first late-payment penalty on the amount that was still outstanding at day 15 — but not the heavier past-30-day layer. Paying before day 31, or arranging Time to Pay, is what stops the escalation.