Businesses may receive penalties for failure to comply with VAT regulations in several different circumstances. Some common examples include:

  1. Failing to file a VAT return on time: If a business fails to file a VAT return by the due date, it may be subject to a penalty. The amount of liability will depend on the length of the delay and the size of the business.
  2. Providing false or incorrect information: If a business provides erroneous or inaccurate information on a VAT return, it may be subject to a penalty. This could include intentionally providing false information or making an honest mistake.
  3. Failing to maintain proper records: Businesses are required to keep accurate records of their VAT transactions. If they fail to do so, they may be subject to a penalty.
  4. Failing to pay the VAT due: If a business fails to pay the VAT that it owes by the due date, it may be subject to a penalty.
  5. Refusing to cooperate with a VAT inspection: If a business refuses to cooperate with a VAT inspection or fails to provide the necessary documentation, it may be subject to a penalty.

All is not lost, though. If you need experienced, affordable help with managing your VAT late payment situation, getting the right information and documents into shape to restore credibility and trust with HMRC and negotiating with them for you, we are an ideal choice. We’ve been doing this for many years, so please do get in contact for a no obligation, empathetic chat.

Penalty points and penalties if you submit your VAT Return late

2023 brings a new penalty system for late VAT returns. This aims to be less severe for taxpayers who occasionally miss filing deadlines. 

Under the new system, HM Revenue and Customs (HMRC) will assign a taxpayer one point each time a deadline is missed. These points will expire after two years, similar to driving license points unless the taxpayer exceeds the penalty thresholds.

Once a taxpayer has accumulated the required points, they will be subject to a £200 penalty. Any subsequently missed deadlines will also result in additional liability of £200, though no additional points will be accrued if a penalty is paid.

VAT Penalties Points:

  • Annual VAT returns: 2 points
  • Quarterly returns: 4 points
  • Monthly returns: 5 points

How Long do the Points Stay on Your Record?

Once a penalty has been triggered, the accumulated penalty points will not automatically expire as they would under normal circumstances.

Instead, to return to zero, the taxpayer must demonstrate a more extended period of compliance (i.e., keeping to statutory deadlines) and submit any outstanding returns due within the prior 24 months.

The ‘good behaviour’ period will depend on the frequency of the taxpayer’s returns: it will be 24 months for those filing annual returns, 12 months for those filing quarterly returns, and six months for those filing monthly returns.

VAT Late Payment Penalties

The following charges apply for paying your VAT late: penalties increase in severity the later you pay.

Late Payment PenaltyPenalty Amount
Payment up to 15 days lateNo penalty
Payment between 16 and 30 days late2% of the amount outstanding at day 15 (HMRC won’t enforce during 2023 unless payments are more than 30 days in arrears)
Payment 30 days or more late2% of the amount outstanding at day 15 + an additional 2% calculated based on the amount outstanding at day 30
Payment 31 days or more late4% p.a. daily penalty on the outstanding amount
Interest on overdue taxBank of England base rate plus 2.5% (even if a time to pay arrangement has been agreed)
Interest on overpaid taxBank of England base rate minus 1%

Can you Negotiate with HMRC about VAT Penalties?

  • HMRC are not unflexible and, with an experienced meditator on your side, it may be possible to negotiate certain terms. Part of this will depend upon:
  • where you stand with HMRC. Have you defaulted before?
  • have you kept in regular communication with HMRC?
  • the sums of money involved
  • your company’s current cash flow forecasts
  • Security – in some cases, where the tax owed exceeds a certain amount and HMRC aren’t certain you’ll be able to pay, they may ask for a Security Bond

How to Avoid VAT Penalties

Avoiding VAT penalties is best done by filing returns on time, and keeping honest and accurate records. You also have the following options:

  • You can ask for a time-to-pay agreement if you’re having trouble making payments – If an instalment payment plan is implemented, the standard interest charges on late payments will be suspended from that day and will not be enforced as long as the payment plan is followed.
  • You have the right to contest either a late filing point or a late payment penalty within 30 days of notification if you believe you have a valid reason for not meeting the deadline. This is known as a “reasonable excuse.”

Need advice about HMRC VAT Problems?

If you would like to talk to someone about HMRC Tax Problems and negotiating time to pay arrangements, call us on 0800 074 6757 for free, confidential advice, or use the live chat function below.

We are experts are helping directors tackling business debt, and have long experience mediating with HMRC.