VAT Late Filing Penalties

Last updated: 14 October 2026

What are the VAT late filing and late payment penalties?

For VAT periods starting on or after 1 January 2023, HMRC uses a points-based system for late returns. Each late return earns one penalty point. When you reach the points threshold (2 for annual, 4 for quarterly or 5 for monthly returns), you pay a £200 penalty, plus another £200 for each further late return. Late payments are penalised separately: 3% of the VAT unpaid at day 15, another 3% at day 30, and then 10% a year, plus late payment interest.

Late filing: the points system

• Each late return earns 1 point, including nil returns and repayment returns
• Reaching the threshold triggers a £200 penalty
• Every late return after that earns another £200 penalty

How to reset your points

Points expire after 24 months if you stay below the threshold. If you reach the threshold, your points reset to zero only after a period of compliance, which is 24 months for annual filers, 12 months for quarterly and 6 months for monthly. During that time you must file every return on time, and all outstanding returns from the previous 24 months must be submitted.

Late payment penalties (rates from 1 April 2025)

Example

A quarterly VAT bill of £15,000 that stays unpaid for 45 days costs a first penalty of £900 (3% + 3%), plus 15 days of the second penalty at 10% a year (about £62), plus late payment interest from the first day.

Late payment interest

Interest is charged from the day after the due date at the Bank of England base rate plus 4%. It is not tax-deductible.

What about penalty notices?

HMRC sends a penalty notice for each penalty. If you disagree, you can ask for a review or appeal within 30 days. You will need a “reasonable excuse”, such as serious illness, an HMRC system failure or the loss of records through fire or theft. Running out of money is not normally accepted.

How to avoid VAT penalties

1. File through MTD software at least a few days before the deadline (one month and 7 days after the period ends)

2. Pay by direct debit, which HMRC collects 3 working days after the deadline

3. Contact HMRC before day 15 to arrange Time to Pay if you can’t pay

4. Use an accountant who tracks your deadlines

Frequently asked questions

Are the old default surcharge rules gone?

Yes. They were replaced for periods starting on or after 1 January 2023.

Does a nil return count?

Yes. A late nil return still earns a point.

Can I appeal a points penalty?

Yes, within 30 days of the penalty notice.

Do the same rules apply to MTD for Income Tax?

Yes. From April 2026, points-based penalties also apply to MTD for Income Tax.

Related: how to register for VAT and VAT on hospitality and gifts.

Talk to Accotax

Want this handled for you? Our team at Accotax can help with VAT returns and penalties. See our VAT accountants service, or contact us for a free, no-obligation quote.

This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.