A new points-based penalty applies to late VAT returns for VAT periods beginning on or after 1 January 2023. The new system affected the first monthly return due on 7th March and the first affected quarterly return was due on 7th May.

This new returns penalty regime joins the completely separate new penalties for late payments in replacing the old system of default surcharges.

The points-based penalty revolves around a points threshold and a compliance period. These vary according to the length of the VAT period:

VAT period Points threshold Compliance period
Monthly 5 6 months
Quarterly 4 12 months
Annually 2 24 months

Points threshold

All traders start on zero points, including those who are on a default surcharge. The system will charge one penalty point for each late VAT return, including returns with a nil liability or where a repayment is due.

  • A £200 penalty is charged once the points threshold is reached.
  • Subsequent late VAT returns after the threshold is reached also incur the £200 penalty.
  • The system does not charge any penalty point if a first or final VAT return is late.

Compliance period for VAT Returns

If the penalty threshold has not been reached, points will expire after two years. Once a trader reaches the threshold, they must submit returns on time throughout the compliance period to reset their points total back to zero.

For example, if a trader submits four consecutive monthly VAT returns late, the system will charge a £200 penalty for any subsequent late returns as the points threshold has been reached. To reset to zero points, the trader must submit six consecutive returns on time.

The new regime for late returns does not penalise those who occasionally file late, but consistently late filers may find their points tally difficult to significantly reduce without clear-sighted guidance and planning.

HMRC guidance on the new penalty points system can be found here.

How can we help you?

The new points-based penalty will apply to late VAT returns for VAT periods starting on or after January 1, 2023; May will be the first affected quarterly return. If you need help with your tax return, please contact us on 01444 716946 or on 01273 963656 or alternatively email us here.