Did You Miss Your VAT Deadline? Here's What You Need to Know

Missing a VAT deadline can be stressfull, but understanding the new penalty system can help you take action quickly and avoid escalating charges. From January 1, 2023, HMRC introduced a new VAT penalty regime that treats late submissions and late payments separately, using a fairer, points-based system for returns and a tiered approach to late payments.

Here’s a breakdown of how it works, and what you can do if you’ve missed your deadline.

What’s Changed in the VAT Penalty System?

Prior to 2023, late VAT returns and payments were dealt with using a default surcharge system. But now, there are two distinct sets of penalties:

• Late VAT Return Submission Penalties – Based on a points system.

• Late VAT Payment Penalties – Based on how late the payment is.

These new rules aim to be more proportionate, especially for occasional slip-ups, while still encouraging consistent compliance.

Late VAT Return Submissions – The Points-Based System

Under the new system, each late VAT return earns you one penalty point. Once you reach a certain threshold, HMRC issues a £200 penalty, and it doesn't stop there.

Further late returns will result in additional £200 penalties each time.

Penalty Point Thresholds by Filing Frequency

If you stay compliant (i.e. file all returns on time) for a full 12-month period, and have submitted all outstanding returns, your points reset to zero — giving you a clean slate.

Late VAT Payments – A Two-Tiered Penalty System

Late payments now carry a two-stage penalty process, separate from return submissions:

• Day 1 to Day 15 – No penalty (just late payment interest).

• Day 16 to Day 30 – First penalty applies: 2% of the unpaid VAT.

• Day 31 onwards – Additional penalty: an extra 2% on top of the initial 2%, plus a second penalty of 4% per annum, charged daily until the balance is paid.

  
  

In addition, late payment interest is charged from the day the payment is due until it’s made in full.

How to Avoid or Reduce VAT Penalties

Even if you've missed a deadline, you have options:

✅ Agree a Time to Pay (TTP) Arrangement

You can propose a Time to Pay agreement with HMRC at any point. This is a bespoke payment plan that reflects your financial circumstances and may reduce or eliminate penalties.

Crucially, if you arrange this within 30 days of the payment due date, you can avoid the second stage of the late payment penalty.

✅ Act Promptly

The earlier you pay, or arrange a Time to Pay, the less interest and fewer penalties you’ll face. Don’t wait for the penalties to escalate.

✅ Reasonable Excuse? You May Be Off the Hook

If there’s a genuine reason why you couldn’t meet your VAT obligations (e.g. serious illness, unexpected IT issues, bereavement), you may be able to appeal the penalty and have it cancelled or reduced.

We Can Help

At Pandey & Co, we work with clients every day to manage VAT obligations, negotiate with HMRC, and set up Time to Pay arrangements. If you've missed a VAT deadline or are struggling to keep up, get in touch today, the sooner you act, the more options you’ll have.

Need help with VAT deadlines or penalty appeals? Contact Pandey & Co today for expert support and peace of mind.