New points-based penalties for late VAT returns

A new points-based penalty applies to late VAT returns for VAT periods beginning on or after 1 January 2023. The first monthly return to be affected was the one due by 7 March, with the first affected quarterly return due 7 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:

Points threshold

All traders start on zero points, including those who are on a default surcharge. One penalty point is then charged for each late VAT return, even for 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.
• No penalty point is charged where a first or final VAT return is late.

Compliance period

If the penalty threshold has not been reached, points will expire after two years. However, once the threshold is reached, a trader has to submit returns on time throughout the compliance period for their points total to be reset back to zero.

For example, if a trader has submitted four consecutive monthly VAT returns late, then the £200 penalty will be charged for any subsequent late returns (the points threshold being 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.