What are the penalties for late VAT?

The following guidance applies to VAT Returns that start on or after 1st Jan 2023.

LATE SUBMISSIONS

Penalties for late returns are calculated under a points system. Each late return counts as 1 point. The number of points above which a penalty is incurred depends on the frequency of returns:

• Annual VAT Returns - 2 points

• Quarterly VAT Returns - 4 points

• Monthly VAT Returns - 5 points

Once a business has surpassed the relevant threshold, a £200 penalty is automatically applied. Thereafter a £200 penalty is automatically applied for each late submission, unless the business has managed to reset its points tally to zero.

To reset its points tally to zero a business must submit VAT returns on time for a certain period. The length of the period depends on the frequency of returns:

• Annual VAT Returns - 24 months

• Quarterly VAT Returns - 12 months

• Monthly VAT Returns - 6 months

LATE PAYMENTS

Late payments are subject to both interest and penalties.

Interest

Interest is charged from the day the VAT payment is due up to the date of payment at Bank of England base rate + 2.5%. This is applied whether or not the business has a Time To Pay arrangement in place.

Penalties

No late payment penalty is charged if the payment is made within 14 days of the due date. Except where a Time to Pay arrangement is made penalties are applied at the following dates and amounts:

• Day 15 - 2% of the liability

• Day 30 - 2% of the liability

• Day 31 onwards until the payment is made - 4% per annum

To avoid the above penalties an application for a Time To Pay arrangements must be made before Day 15. Approval by HMRC is not required by the same date.

The Time To Pay arrangement remains in place as long as its terms are met. Even one missed payment results in penalties being applied.