Filing a VAT return or paying the tax office is all a business needs to know after registering for VAT.

Once your business has a VAT number, it means you are obliged to make regular VAT returns.

You can read about the detailed VAT points system and the latest penalty system so far in this article.

VAT Points System

The new VAT points system is planned to be effective from 1 January 2023.

The system will impose separate penalties for late filing of VAT returns and late payment of VAT, and interest on late penalties will also change.

Specific guidance will be issued in December 2022 on changes in fees related to overdue penalties and VAT interest.

Late filing of VAT returns

A new points system will be used for late filing of VAT returns, with different filing frequencies corresponding to different penalty thresholds.

One point will be deducted each time a business delays filing a return, until it hits the penalty threshold shown on the right and receives a £200 fine.

Not only that, but businesses will also receive an additional £200 fine for each late filing thereafter.

For specific points, please see the penalty rules mentioned by GOV.UK.


Reset the Points Back to Zero

  • Maintain good compliance whenever a business files a VAT return on or before the due date of the compliance period
  • Assure HMRC has received all outstanding tax refunds due in the past 24 months

Late payment of VAT 

The sooner you pay late fees, the lower your penalty interest charges. 

  • 1-15 days late, full payment of the VAT owed or the same payment plan will not be penalized. 
  • 16-30 days late, pay in full or agree to a payment plan and you will receive a first penalty of 2% of the VAT owed on the 15th day. 
  • 31 days late, pay in full or agree to a payment plan, add a 2% penalty to the 15th day penalty. 
  • More than 31 days overdue, in addition to the first two fines need to be paid. During the outstanding period, you will receive another penalty at the daily rate of 4% per annum. 

How to Avoid Penalties

First and foremost, our tax experts strongly advise every business to file VAT returns on time and pay in full by the deadline date.

Second, businesses may face temporary financial crisis and not be able to pay on time, which may require an instalment payment plan with HMRC. This can help businesses defer payment stress, but there are additional interest charges.

Finally, no one wants to see taxpayers have any breach of contract disputes with HMRC, which must take up a lot of time and energy to deal with.

If you have any tax questions, please contact our team of experts for further assistance.

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