From 1 January 2023, you’ll get penalty points if you submit a VAT Return late (including nil payment returns). Find out how points work and how to avoid a £200 penalty.
For VAT accounting periods starting on or after 1 January 2023, late submission penalties apply if you submit your VAT Return late.
The VAT default surcharge is being replaced by new penalties for returns that are submitted late and VAT which is paid late. The way interest is charged is also changing.
These changes affect everyone who submits VAT Returns, including a nil or repayment return.
How late submission penalties work
You must send a VAT Return by the deadline for your accounting period. Your accounting period is when you need to send a return to HMRC, for example, quarterly.
Late submission penalties work on a points-based system.
For each return you submit late you will receive a penalty point.
Once you’ve reached a penalty point threshold, you’ll receive a £200 penalty and a further £200 penalty for each subsequent late submission while you’re at the threshold.
The penalty point threshold for your accounting period
The penalty point threshold is set by your accounting period. The threshold is the maximum points you can receive.
| Accounting period | Penalty points threshold |
|---|---|
| Annually | 2 |
| Quarterly | 4 |
| Monthly | 5 |
Penalty example for a business making quarterly returns
A company submits their VAT Return quarterly. This means their penalty point threshold is 4.
They already have 3 penalty points because they submitted 3 previous returns late.
They submit their next return late and get a fourth penalty point. Because they’ve reached the penalty point threshold, they receive a £200 penalty.
The company submits their next return on time. They stay at threshold of 4 penalty points but do not get a £200 penalty.
The company submits their next return late. As they’re still at the penalty point threshold of 4 points, they receive another £200 penalty.
If you use a non-standard accounting period
If you have agreement from HMRC to use non-standard accounting periods, different rules apply.
| Accounting period | Penalty points threshold | Rules that apply |
|---|---|---|
| Over 20 weeks | 2 | Annual |
| Over 8 weeks and no more than 20 weeks | 4 | Quarterly |
| 8 weeks or less | 5 | Monthly |
How changes to your business affect penalty points
Changing your accounting period
If you’ve agreed with HMRC to change how often you submit returns, we will adjust your threshold and penalty points.
This is how we will adjust your penalty points threshold:
| Previous accounting period | Previous penalty point threshold | New accounting period | New penalty point threshold |
|---|---|---|---|
| Annual | 2 | Quarterly | 4 |
| Annual | 2 | Monthly | 5 |
| Quarterly | 4 | Annual | 2 |
| Quarterly | 4 | Monthly | 5 |
| Monthly | 5 | Annual | 2 |
| Monthly | 5 | Quarterly | 4 |
If you have existing penalty points, this is how we will adjust your penalty points:
| Previous accounting period | New accounting period | Penalty points adjustment |
|---|---|---|
| Annual | Quarterly | + 2 points |
| Annual | Monthly | + 3 points |
| Quarterly | Annual | – 2 points |
| Quarterly | Monthly | + 1 point |
| Monthly | Annual | – 3 points |
| Monthly | Quarterly | -1 point |
When you change your accounting period:
- we’ll set your penalty points to zero if the adjustment gives you a minus figure
- we will not make an adjustment if you have zero points
You cannot appeal adjustments to your penalty points.
When you change from a non-standard accounting period to the equivalent standard period, your points will not change.
| Non-standard accounting period | Equivalent standard accounting period |
|---|---|
| Over 20 weeks | Annual |
| Over 8 weeks and no more than 20 weeks | Quarterly |
| 8 weeks or less | Monthly |
Taking over a business
If you take over a VAT-registered business as a ‘going concern’ any penalty points built-up by the business will not be transferred to your VAT registration number. This will be the case even if the VAT registration number is transferred from the previous owner to yourself.
Find out more about what ‘going concern’ for VAT means in paragraphs 1.3 and 1.4 of VAT Notice 700/9.
VAT groups and penalty points
If the representative member of a VAT group changes, any penalty points they’ve built-up are transferred to the new representative member.
The VAT groups’ penalty points total does not change if a person:
- joins the group, even if the joining member had penalty points
- leaves the group (the leaving member does not take points with them)
VAT Returns not affected
The late submission penalty rules do not apply to your:
- first VAT return if you’re newly VAT registered
- final VAT return after you cancel your VAT registration
- one-off returns that cover a period other than a month, quarter or year
For example, you might make a one-off return covering a four-month period because you changed from submitting quarterly to annually.
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