Late VAT Return Penalty Points System

Overview Of Late VAT Return Penalty Points System

From 1 January 2023 a late VAT return penalty points system applies to encourage taxpayer compliance.

This system applies to a VAT return submitted late of any kind including nil returns or a VAT return that is for repayment of VAT.

The VAT penalty point system will be based on a system of financial penalties and penalty points.

What Happens If You Are Late With A VAT Return?

If you are late submitting your VAT return then for each late return you will receive one penalty point.

If you breach the limit of the penalty point system you will then receive a £200 penalty. Further late VAT returns will also receive a £200 penalty.

Submission frequency                            Penalty Points                      Limit Period Of Compliance

Annually                                                             2                                                    24 months

Quarterly                                                            4                                                    12 months

Monthly                                                              5                                                     6 months

You will be able to reset your points back to zero if you:

• submit your returns on or before the due date for your period of compliance — this will be based on your submission frequency
• make sure all outstanding returns due for the previous 24 months have been received by HMRC

Late Payment Of VAT

If you are late paying VAT then a penalty regime kicks into effect based on the VAT owed  as follows:

Up To 15 Days Arrears

There is a 15-day grace period provided you pay the outstanding VAT owed in full or enter into a time to pay agreement of some sort. If you pay within 15 days then there will be no penalty.

From 16 To 30 Days Arrears

A 2% penalty will arise if you pay in full or agree on a payment plan between days 16 and 30.

31 Days Or More Arrears

You will receive a first penalty calculated at 2% on the VAT you owe on day 15 plus 2% on the VAT you owe on day 30.

You will be issued a further penalty at the daily rate of 4% per year for the remainder of the overdue amount. 

Late Payment Interest

Late payment interest is charged at Bank of England Base Rate plus 2.5% from the date a payment of VAT was due until the date the payment is made.

Repayment Interest

HMRC will pay interest on VAT repayments that the taxpayer is owed which will be applied from the due date or the VAT return submission date (if it is later) until HMRC makes the repayment of VAT in full.

Repayment interest will be calculated at the Bank of England Base Rate minus 1%. The minimum rate of repayment interest will be 0.5%.