HMRC VAT penalties: Key changes and how to stay compliant

In April 2025, HMRC increased the percentage for both the late payment penalties and daily interest. This is an update to the late submission and late payment penalties and interest regime, introduced in January 2023.

VAT penalty points

A new points system has been introduced where VAT penalty points are accumulated for late submission of VAT returns. Fines are issued when certain points limits are reached:

Submission period	Points threshold	Points reset to nil
Annual VAT returns.	Two points.	Two annual returns submitted on time.
Quarterly VAT returns.	Four points.	Four quarterly returns submitted on time.
Monthly VAT returns.	Five points.	Six monthly returns submitted on time.

A £200 penalty will be issued if you hit the points threshold. Once in the system, you will receive a £200 penalty each time you submit a late VAT return. This will happen until you have reset the clock (above) and all VAT returns for the last 24 months have been received by HMRC.

Points will not be issued for:

First period VAT returns for newly registered businesses
Final VAT return after cancelling your VAT registration
One-off monthly returns that cover a period other monthly, quarterly or annual

Late payment VAT penalty

Payment made up to 15 days late = no penalty, but interest accrued daily (see below)
Late payment penalty one is now 3% of the outstanding VAT due on day 15, PLUS 3% of the outstanding VAT due at day 30. This was previously 2% respectively
Late payment penalty two is now calculated at a daily rate of 10% per annum. This is charged every day from day 31 until the balance is paid in full

Late payment interest:

Late payment interest has increased to 4% above base rate and is charged daily from the first day the VAT is overdue until paid in full. Previously this was 2.5% above base rate

Avoiding a VAT penalty

Ultimately paying as much as possible as soon as possible will reduce any potential penalties and interest. We would always therefore advise you to pay as much as you can afford.

If you cannot afford to pay the VAT due on time you should contact HMRC as soon as possible to request a ‘time to pay’ arrangement. If a time to pay is agreed by HMRC and the business sticks to the plan, no late payment penalties will be charged but interest will still be accrued.

If the VAT due is less than £100,000 and you have no other HMRC debts or outstanding returns, you can apply online for a payment plan.

Submitting the VAT return on time, regardless of payment, will avoid the late filing penalty points (see factsheet for more details) and potential penalties.

Further information on VAT late penalties

Further details explaining how HMRC intend to administer the new penalties and interest can be found in our VAT penalties factsheet.

Ensure your business stays compliant and avoids penalties with expert guidance from our experts. Contact us today to learn how we can help you manage your VAT returns efficiently and effectively.