From January 1, 2023, the consequences for submitting a VAT Return late changed. Even if there is no payment due, late submissions will result in penalty points, and a financial VAT penalty may be imposed. It is important to understand how VAT penalty points work and to take steps to avoid them.
This HMRC video explains in brief about the new VAT penalty regime:
What is the VAT Penalty Point Threshold and How Does it Work?
If you’re a VAT registered business owner in the UK, it’s important to understand the VAT penalty point threshold.
This threshold determines the number of penalty points you can accumulate before facing serious consequences, such as fines. In this blog post, we’ll explain the VAT penalty point threshold and how to stay compliant.
When it comes to VAT penalties, the number of points you can receive before facing a penalty is determined by your accounting period. It’s important to note that there is a maximum threshold for these penalty points, so be sure to stay within the limit to avoid any penalties.
| Accounting period | Penalty points threshold |
|---|---|
| Annually | 2 |
| Quarterly | 4 |
| Monthly | 5 |
For less common accounting VAT accounting period read the HMRC VAT penalty guidance.
What is the UK VAT penalty point system?
The UK VAT penalty point system is a way for HM Revenue and Customs (HMRC) to track and penalise businesses that fail to comply with VAT regulations. Under this system, businesses receive a penalty point for each VAT return that is filed late or contains errors. Once the points threshold is exceeded a late submission of VAT return will incur a financial penalty.
The HMRC website provides this example:
“Penalty example for a business making quarterly returns
A company submits their VAT Return quarterly. This means their penalty point threshold is 4.
They already have 3 penalty points because they submitted 3 previous returns late.
They submit their next return late and get a fourth penalty point. Because they’ve reached the penalty point threshold, they receive a £200 penalty.
The company submits their next return on time. They stay at threshold of 4 penalty points but do not get a £200 penalty.
The company submits their next return late. As they’re still at the penalty point threshold of 4 points, they receive another £200 penalty.”
Some VAT returns are not affected:
These VAT penalty rues for late VAT return submission do not apply to your:
- first VAT return when you have recently registered for VAT
- final VAT return once your VAT registration has been cancelled
- one-off returns that cover a period other than a month, quarter or year
E.g. you may make a one-off VAT return submission relating to a four-month period as you changed from submitting quarterly to annually.
Appeal a point or a financial VAT penalty
If you fail to submit your VAT return on time, you may face penalties from HMRC. These penalties can include a late submission penalty point or a £200 penalty. If you receive a penalty decision letter from HMRC, it will inform you of the penalty and offer you the opportunity to request a review.
Details of how to appeal against a penalty can be found here.
How to remove VAT penalty points
If you have reached the penalty points threshold for your accounting period, you can only remove them by meeting two conditions.
Firstly, you must complete a period of compliance by submitting all returns by the deadline. Secondly, you must submit all outstanding returns for the previous 24 months.
If you have not reached the penalty point threshold then, VAT penalty points will automatically expire.
Further information on removing VAT penalty points can be found here.
How can you avoid VAT penalty points?
The best way to avoid VAT penalty points and fines is to ensure that you are submitting your VAT returns on time.
It’s important to stay up-to-date with any changes to VAT regulations and seek professional advice if you are unsure about any aspect of VAT compliance.
VAT late payment penalties
In addition to the new VAT penalty point system, the VAT penalties on late payment where also changed. The HMRC website explains more.
We prepare VAT returns for many clients, if you would like to discuss how we can help contact us.
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