Late VAT return? How HMRC penalty points and £200 penalties work

VAT late-submission penalties now work on a points system for accounting periods beginning on or after 1 January 2023. One late VAT return does not normally produce an immediate financial penalty, but repeated late returns can take you to a threshold where a £200 penalty is charged.

Nil and repayment returns still count as submission obligations.

The points thresholds

The threshold depends on how often you file VAT returns:

Each late return normally adds a point until you reach the threshold.

When you hit the threshold, HMRC charges a £200 penalty. If you remain at the threshold, each further late submission can trigger another £200 penalty.

Example: quarterly VAT returns

Suppose a business files quarterly and already has 3 penalty points.

Its next VAT return is late:

• it receives a fourth point;
• the quarterly threshold is now reached;
• HMRC charges a £200 penalty.

If the next return is on time, the business does not get another £200 penalty merely because it remains on 4 points.

But if a later return is submitted late while the business is still at the threshold, another £200 penalty can arise.

Points do not disappear immediately

Before the threshold is reached, individual points normally have a limited life.

Once you are at the threshold, getting back to zero requires a period of good compliance and bringing outstanding submissions up to date.

HMRC's rules use different compliance periods depending on filing frequency. For example, the compliance period is longer for annual filing than for monthly filing.

The practical lesson is that filing one return on time after reaching the threshold does not instantly reset the points total.

Some VAT returns are outside the points regime

HMRC says the late-submission points rules do not apply to certain returns, including:

• the first VAT return after a new registration;
• the final return after cancelling VAT registration;
• certain one-off returns covering non-standard periods.

That does not mean those returns can safely be ignored. It means the specific points-based late-submission regime may not apply to them.

Late submission and late payment are separate

A VAT return can be filed on time while the VAT is paid late, or paid on time while the return is filed late.

Different rules apply to late payment, including late-payment penalties and interest.

When reviewing an HMRC VAT penalty, identify whether it relates to:

• a late return;
• late payment;
• both;
• an older accounting period still subject to the previous default-surcharge rules.

Can you appeal a VAT penalty point?

HMRC tells businesses about points and financial penalties through a penalty decision.

You can ask HMRC to review a point or financial penalty, and you can appeal where appropriate. A reasonable excuse may lead to a point or penalty being cancelled or amended.

Keep evidence of what prevented filing and, importantly, submit the return as soon as you can once the problem ends.

What to gather before asking for help

If your VAT penalty position has become confusing, gather:

1. your VAT accounting frequency;
2. the due dates and actual submission dates for recent returns;
3. HMRC penalty decisions;
4. your current penalty-points total from the VAT account;
5. any missing VAT returns;
6. payment dates and outstanding VAT;
7. evidence of any event that prevented timely filing.

The first useful calculation is how many points you have, what filing threshold applies, and whether any further late return will now trigger £200.