Key takeaways
- Late VAT returns earn penalty points; once you reach the threshold (4 points for quarterly filers) each late return costs £200.
- Late payment penalties are 3% of tax unpaid at day 15, plus 3% of tax unpaid at day 30, plus 10% a year from day 31.
- Late payment interest runs from the due date at the Bank of England base rate plus 4%.
- Errors on returns can attract penalties of up to 30% (careless) or 100% (deliberate and concealed) of the extra VAT, reduced if you disclose.
- The old default surcharge no longer applies to VAT periods starting on or after 1 January 2023.
HMRC replaced the VAT default surcharge with a new penalty regime for VAT periods starting on or after 1 January 2023. Late returns and late payments are now penalised separately: returns through a points system, payments through percentage penalties and interest. The aim is to treat occasional slips lightly and persistent lateness more harshly.
Late submission: the points system
Each VAT return you submit late earns one penalty point, including nil returns and repayment returns. Nothing is charged until you reach the threshold for your filing frequency.
| How often you file | Points threshold |
|---|---|
| Annually | 2 |
| Quarterly | 4 |
| Monthly | 5 |
When you reach the threshold you are charged a £200 penalty. Every further late return while you are at the threshold brings another £200 penalty. You do not collect points beyond the threshold.
How points expire
- Below the threshold: each point expires automatically after about 24 months, on the last day of the month 24 months after the month the late return was due (25 months if the deadline was the last day of a month).
- At the threshold: points do not expire on their own. You remove them all by meeting two conditions: completing a period of compliance, filing every return on time for 12 months if you file quarterly (6 months monthly, 24 months annually), and submitting all returns due in the previous 24 months.
Late payment penalties
Late payment penalties apply to VAT not paid by the due date, including VAT due after an amendment or an HMRC assessment. They do not apply to payments on account or annual accounting instalments.
| When the VAT is paid | Penalty |
|---|---|
| Within 15 days of the due date | None |
| Between day 16 and day 30 | 3% of the VAT outstanding at day 15 |
| Day 31 or later | 3% of the VAT outstanding at day 15, plus 3% of the VAT still outstanding at day 30, plus a daily penalty at 10% a year on the balance from day 31 until paid |
These rates apply to VAT due from 1 April 2025. Before then the penalties were 2% at day 15, a further 2% at day 30 and 4% a year from day 31.
Example
A business owes £10,000 VAT due on 7 August and pays nothing until 21 September, 45 days late.
- First penalty: 3% of £10,000 at day 15 plus 3% of £10,000 at day 30 = £600
- Second penalty: 10% a year on £10,000 for the 15 days from day 31 to day 45 = about £41
- Plus late payment interest on £10,000 for 45 days
Paying within 15 days, or agreeing a Time to Pay arrangement with HMRC within that window, avoids the penalty. A Time to Pay arrangement agreed later stops further penalties building up, provided you keep to it. See HMRC Time to Pay.
Late payment interest
Interest is charged on late VAT from the day after the due date until it is paid, at the Bank of England base rate plus 4% (base rate plus 2.5% before April 2025). Interest is not a penalty, so it cannot be appealed on grounds of reasonable excuse.
If HMRC repays VAT late, or you have overpaid, repayment interest may be paid to you at base rate minus 1%, with a minimum of 0.5%.
Penalties for errors
If a VAT return is wrong and HMRC finds that you did not take reasonable care, it can charge an inaccuracy penalty as a percentage of the extra VAT due:
| Behaviour | Maximum | Minimum after unprompted disclosure | Minimum after prompted disclosure |
|---|---|---|---|
| Careless | 30% | 0% | 15% |
| Deliberate | 70% | 20% | 35% |
| Deliberate and concealed | 100% | 30% | 50% |
No penalty applies to an error made despite taking reasonable care. Careless penalties can be suspended for up to two years if you agree conditions to improve your record keeping. Correcting errors promptly, on your next return where allowed, keeps penalties down; see how to complete a VAT return.
Penalties for registering late
If you should have registered for VAT and did not, you owe the VAT you should have accounted for from your effective date of registration, whether or not you charged it. HMRC can also charge a failure to notify penalty based on that VAT, ranging from 0% to 30% for non-deliberate failures and up to 100% for deliberate and concealed ones, with reductions for disclosure. Telling HMRC within 12 months of the date you should have registered keeps the minimum penalty at zero for non-deliberate cases. See VAT registration.
Making Tax Digital and record-keeping
HMRC can charge penalties for failing to keep the records VAT law requires, including the digital records and digital links required under Making Tax Digital for VAT. Filing a return through non-compatible means without an exemption can also lead to penalties.
Appeals and reasonable excuse
You can ask HMRC to review a penalty or appeal to the tribunal, usually within 30 days of the penalty decision. HMRC can cancel late submission and late payment penalties if you had a reasonable excuse, such as serious illness, a bereavement, or an unexpected IT failure that you could not have prevented, provided you put things right without unreasonable delay once the excuse ended. Lack of money is not normally a reasonable excuse, though the reason for the shortfall might be.
For penalties across other taxes, including Self Assessment and Corporation Tax, see our HMRC penalties guide.
Frequently asked questions
What is the penalty for a late VAT return?
One penalty point per late return. Once you reach the threshold, 4 points for quarterly filers, each late return costs £200.
How much is the penalty for paying VAT late?
Nothing if paid within 15 days. 3% of the outstanding VAT if paid between day 16 and day 30. From day 31, a further 3% plus a daily penalty at 10% a year until paid. Interest is charged on top.
Do I get a penalty point for a late nil return?
Yes. Every return must be filed on time, including nil returns and repayment returns.
Is the VAT default surcharge still used?
No, not for VAT periods starting on or after 1 January 2023. It still applies to earlier periods.
How do I get rid of VAT penalty points?
Below the threshold they expire after about 24 months. At the threshold, you must file on time for a period of compliance and have no outstanding returns for the previous 24 months.
Sources
Rates, thresholds and rules in this guide were checked against HMRC and GOV.UK guidance in October 2026. Tax rules change, so check the current position on GOV.UK or with a qualified adviser before acting. This guide is general information, not personal advice.