VAT late filing penalties

New rules mean late VAT filings and payments now trigger points, fines and interest charges.

The VAT late filing penalties regime changed for accounting periods beginning on or after 1 January 2023. Under the new system, there are now distinct and separate penalties for late filing of VAT returns and for the late payment of VAT liabilities.

The revised system operates on a points-based approach. A taxpayer receives one penalty point for each VAT return that is submitted late. Once a specific threshold of points is reached, a financial penalty of £200 is charged and the taxpayer is notified.

The penalty thresholds based on VAT return frequency are as follows:

• For monthly VAT returns, the threshold is five penalty points.
• For quarterly VAT returns, the threshold is four penalty points.
• For annual VAT returns, the threshold is two penalty points.

For example, a business that files VAT returns on a quarterly basis will receive a £200 penalty once it accumulates four late submission points. To remove the penalty points and return to a clean compliance record, the taxpayer must submit all VAT returns on time for a continuous period of twelve months. There are also statutory time limits after which a penalty point cannot be issued for a particular late return.

Late payment penalties are applied separately. If VAT remains unpaid between 16 and 30 days after the due date, a first penalty of 2% of the outstanding tax is charged. If the VAT is still unpaid 31 days or more after the due date, a second penalty of 4% of the outstanding amount applies.

In addition, late payment interest is charged from the day payment becomes overdue until it is paid in full.