What happens if my VAT return is late?

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On the 1st October 2023 HMRC changed the way they deal with late VAT returns.

In the past you would receive a fine and have to pay interest.

They have now moved to a penalty system as well as interest payments.

How does the penalty system work?

If you submit your VAT return late you will receive a penalty point. This includes if it was a nil return or you had nothing to pay.

The number of penalty points you can have before you receive a fine, known as your penalty points threshold, is based on your accounting period and how often you are required to file VAT returns.

If you file your returns annually your penalty points threshold is 2 points. If you file quarterly your penalty points threshold is 4 points and if you file monthly the threshold is 5 points.


What happens if I reach the threshold?

Once you reach your penalty points threshold, you will receive a penalty of £200. Any subsequent late submissions whilst you are at the threshold will also incur a £200 penalty.

Penalty points will be removed after both submission of all outstanding VAT returns and a period of compliance which varies between 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.


How will I know about a late penalty point or penalty fine?

If you receive a late submission penalty point or a £200 penalty, HMRC will tell you in a penalty decision letter. The letter will offer you a review with HMRC.

You can check details of penalties in your VAT online account and ask for a review through your online account.


Can I get a late penalty point cancelled?

Your penalty may be cancelled or amended if you have a reasonable excuse.

A list of what HMRC considers reasonable excuses can be found on their website but they are pretty extenuating circumstances such as death of a partner or close relative, an unexpected stay in hospital, a serious or life threatening illness, computer or software failure whilst you were preparing your online return or service issues with HMRC’s online services, to name a few.


Are there any other costs I should know about?

As well as a penalty point or penalty fine, you will be charged interest on any VAT you owe. HMRC will charge late payment interest from the first day your payment is overdue until it is paid in full. The interest rate is calculated at the Bank of England base rate plus 2.5%.

Late payment interest is also charged on any outstanding amounts if you are paying the VAT owed in installments and is calculated on a daily basis on the amount outstanding.


Want help with your VAT Return?

Running a business is stressful enough as it is without worrying about tracking deadlines and filing VAT returns. If you would like to know more about our services and how we can help lighten your load then complete our quick questionnaire and we’ll be in touch to book in a discovery call.