The Late Submission Points System
Since January 2023 HMRC has run a points-based late submission system for VAT returns. Each late VAT return earns one point. When the running total hits the threshold for your filing frequency, a flat £200 penalty applies.
- Annual VAT returns — threshold of 2 points
- Quarterly VAT returns — threshold of 4 points
- Monthly VAT returns — threshold of 5 points
Once at the threshold, every additional late return triggers a further £200 charge, regardless of the VAT amount due.
Late Payment Penalties for VAT
Late payment penalties run separately from points and depend on how many days late the VAT is paid:
- Up to 15 days late — no penalty if paid in full or a Time to Pay arrangement is agreed.
- 16–30 days late — 2% of the VAT outstanding at day 15.
- 31+ days late — an additional 2% of the VAT outstanding at day 30, plus a second penalty accruing daily at 4% per year on the outstanding balance.
Late payment interest is also charged from the due date until the balance is paid in full, at the Bank of England base rate plus 2.5%.
How Penalty Points Are Removed
Below the threshold, individual points expire after 24 months. Once at the threshold, all points are only removed after a period of full compliance: every VAT return for the relevant compliance period must be submitted on time, and any outstanding VAT returns from the previous 24 months must be brought up to date.
Other MTD VAT Compliance Risks
Penalties are not limited to lateness. HMRC can also act where a business:
- Fails to keep VAT records digitally as required by MTD.
- Breaks the digital links rule by retyping figures between systems.
- Files VAT returns outside MTD-compatible software when MTD applies.
Avoiding MTD VAT Penalties
- Use HMRC-recognised MTD VAT software and authorise it once.
- Set a calendar reminder 7 days before each VAT return deadline.
- Reconcile bank feeds weekly so there is no last-minute scramble.
- If you cannot pay on time, contact HMRC about a Time to Pay arrangement before day 15.