VAT Penalty Notices

Two new VAT penalty regimes came into effect for VAT periods beginning on and after 1 January 2023, for late filing of VAT returns and for late payment.

Late filing of a VAT return now attracts a penalty point rather than a warning or formal default surcharge notice. Only when you reach a certain threshold of points do you have to pay a fixed financial penalty of £200.

The points threshold which generates a financial penalty varies according to the frequency of the VAT returns required:

  • Annual returns: £200 penalty at 2 points
  • Quarterly returns: £200 penalty at 4 points
  • Monthly returns: £200 penalty at 5 points

Once the points threshold is reached all further late returns after that attract another £200 penalty until the points slate is wiped clean. You need to achieve full compliance for two years to wipe out points awarded for late quarterly returns.

HMRC has issued the first points for late-filed monthly VAT returns. Any late quarterly returns will start to generate penalty points after 7 May 2023.

If you receive a notice about late filing penalties, check the VAT number shown matches your own registration VAT number, as the letter may not include your business name or address.

Next, check if your VAT return was submitted late and if it was, whether you have a reasonable excuse for the late filing. You can appeal against points awarded incorrectly, or where you have a good excuse.

The new late payment penalties give you a grace period of 30 days to pay the VAT due in 2023 but do your best to pay promptly as interest will be charged on late payment at 6.75% from the first day it is late.

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