Don't pay the (VAT) penalty for being late!

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.

Points based penalties

A new points system has been introduced where 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 penalties

Payment made up to 15 days late = no penalty
Payment made between 16 and 30 days late = penalty calculated at 3% of the VAT due at the end of day 15
Payment still late after 30 days = penalty calculated at 3% of the VAT due at day 30

Changes to the late payment penalties:

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%
Late payment penalty two is now calculated at a daily rate of 10% per annum. This is charged everyday from day 31 until the balance is paid in full
Late payment interest has increased to 4% above base rate and is charged daily from first day the VAT is overdue. Previously this was 2.5% above base rate

Avoiding VAT penalties

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.

Submitting the VAT return on time, regardless of payment, will avoid the new late filing points and potential penalties.

VAT late penalties factsheet

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.