Understanding HMRC’s Penalty Points for Late VAT Return Submission: A Guide for Business Owners

As a business, it is crucial to stay up to date with the latest regulatory changes that can impact your financial obligations. One such change introduced by HM Revenue & Customs (HMRC) is the implementation of a new regime of penalty points and penalties for late submission of VAT Returns. Effective from 1 January 2023, these new rules have been put in place to ensure timely compliance. In this article, we will explore how the penalty points system works, how to avoid a £200 penalty, and how your accountant can assist you in meeting your VAT filing deadlines.

How Late Submission Penalties Work:

Under the new system, HMRC operates a points-based penalty system for late submission of VAT Returns. For each return that is submitted late, a penalty point is assigned. These penalty points accumulate until they reach the threshold for your submission frequency period. Once the threshold is reached, a £200 penalty is imposed. Subsequent late submissions while at the threshold will result in additional £200 penalties.

Penalty Point Thresholds:

The penalty point threshold for your business depends on your accounting period. Here’s a simple table to illustrate:

Accounting Period Penalty Points Threshold
Annually 2
Quarterly 4
Monthly 5

Example of a Penalty Calculation:

To illustrate the penalty calculation, let’s consider a business that submits VAT Returns on a quarterly basis. Suppose they already have 3 penalty points due to previous late submissions. If they submit their next return late and receive a fourth penalty point, they will reach the penalty point threshold of 4. As a result, a £200 penalty will be imposed. If they submit the next return on time, they will remain at the threshold but will not receive an additional penalty. However, if they submit the following return late while still at the threshold, another £200 penalty will be imposed.

Removal of Penalty Points

Penalty Points will be removed after both submission of all outstanding VAT returns and a period of compliance (6 to 24 months). The appropriate period of compliance will be based on the VAT submission frequency of your business and the date at which all outstanding returns are submitted.

Non-Standard Accounting Periods:

Different rules apply if you have an agreement with HMRC to use non-standard accounting periods:

Accounting Period Penalty Points Threshold Equivalent Standard Period
Over 20 weeks 2 Annual
Over 8 weeks and no more than 20 weeks 4 Quarterly
8 weeks or less 5 Monthly

Changes to Your Business and Penalty Points:

If you’ve agreed with HMRC to change how often you submit returns, your threshold and penalty points will be adjusted accordingly. For example, if you change from an annual to a quarterly accounting period, your penalty point threshold will increase from 2 to 4.

Taking Over a Business and VAT Groups:

If you’re considering taking over a VAT-registered business as a ‘going concern’, it’s important to note that any penalty points accumulated by the business will not be transferred to your VAT registration number. This remains true even if the VAT registration number is transferred from the previous owner to you. This means you can start fresh without the burden of the previous owner’s late submission penalties.

In the context of VAT groups, if the representative member of a VAT group changes, any penalty points they’ve built up are transferred to the new representative member. However, the total penalty points of the VAT group do not change if a person joins or leaves the group. For instance, if a joining member had penalty points, these will not be added to the group’s total. Similarly, a leaving member does not take points with them.

These rules ensure that businesses are held accountable for their VAT Return submissions without being unfairly penalised for changes in their structure or ownership. It’s crucial to understand these rules when planning changes to your business or considering taking over an existing business.

How to Avoid Penalties:

To avoid penalties for late VAT Return submission, it is essential to submit your returns on time. This means adhering to the deadlines set by HMRC for your accounting period. However, meeting these deadlines can be challenging, especially when running a busy business. This is where having a professional chartered accountant can make a significant difference.

How Your Accountant Can Help:

By working closely with your chartered accountant, you can ensure that your VAT Returns are submitted accurately and promptly. Your accountant will stay on top of the deadlines and assist you in meeting your compliance obligations. They will help you navigate the complexities of VAT regulations, ensuring that your returns are error-free and filed on time.


The new penalty points system for late VAT Return submission is now in effect, and it is crucial to understand how these penalties work to avoid unnecessary financial burdens. By staying proactive and working with a knowledgeable accountant, you can ensure that your business remains compliant. Your accountant can guide you through the submission process, assist with accurate record-keeping, and help you meet your obligations on time. Don’t hesitate to seek their expertise to mitigate the risk of penalties and ensure your financial affairs are in order.

Remember, timely compliance is essential not only to avoid penalties but also to maintain a strong working relationship with HMRC.


How to Manage your VAT Compliance

If you’re currently finding it challenging to manage your VAT compliance and meet the submission deadlines, it may be time to consider the benefits of working closely with a chartered accountant. Here are some ways your accountant can help:

  1. Compliance Assistance: Your accountant will ensure that you understand your VAT obligations and deadlines. They will help you gather the necessary information, prepare your VAT Return accurately, and submit it on time. By staying on top of your VAT compliance, your accountant can help you avoid penalty points and associated penalties.
  2. Timely Record-Keeping: Maintaining organised and up-to-date records is crucial for accurate VAT reporting. Your accountant can help you implement effective record-keeping systems and processes, ensuring that you have the necessary documents readily available when it’s time to submit your VAT Return. This will not only streamline the submission process but also minimise the risk of errors or omissions.
  3. VAT Planning and Advice: VAT regulations can be complex, and there may be opportunities for tax planning and optimisation. Your accountant can provide valuable advice on VAT matters, such as choosing the most appropriate VAT scheme for your business, identifying potential exemptions or reliefs, and ensuring that you’re not overpaying or underpaying VAT.
  4. Communication with HMRC: Dealing with HMRC can sometimes be overwhelming, especially if you’re facing penalties or have queries about your VAT obligations. Your accountant can act as a liaison between your business and HMRC, communicating on your behalf, and resolving any issues or concerns that may arise. This will save you time and effort while ensuring that your communication with HMRC is conducted professionally and effectively.

The introduction of penalty points for late VAT Return submission emphasises the importance of timely compliance for all businesses. It’s crucial to understand the penalty point thresholds for your accounting period and diligently submit your returns on time. By partnering with a qualified chartered accountant, you can ensure that your VAT affairs are managed efficiently, enabling you to focus on running and growing your business.

Remember, every business is unique, and the advice provided in this article is general in nature. It’s important to consult with a qualified accountant who can provide personalised guidance based on your specific circumstances. By working together, you can ensure that your VAT affairs are handled professionally and efficiently, minimising risks and maximising opportunities for your business’s success.