HMRC has replaced its default surcharge system with a points‑based penalty regime effective 1 January 2023. Late submissions accrue one penalty point each, with a £200 financial penalty triggered at filing‑frequency thresholds, while late payments incur percentage‑based penalties and interest at the Bank of England base rate plus 4%. Businesses must appeal within 30 days of a penalty notice and can reset points after a compliance period.
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Key Takeaways
A financial penalty of £200 applies when a VAT‑registered business accumulates penalty points equal to its filing frequency threshold: 2 points for annual filers, 4 for quarterly, 5 for monthly.
For payments 31 days or more late, the first penalty is 3% of the VAT outstanding at day 15 plus an additional 3% of the amount still outstanding at day 30, followed by a daily rate of 10% per annum on the remaining balance.
Interest runs at the Bank of England base rate plus 4% on any unpaid VAT, and repayment interest at the base rate minus 1% (minimum 0.5%) on HMRC repayments.
Penalty points expire automatically 24 months after the return was due (or 25 months if the deadline was a month‑end) unless the business has reached the threshold and resets them.
A business has 30 days from the penalty notice to appeal, and must demonstrate a reasonable excuse such as serious illness, HMRC system failure, or mistaken belief that no return was due.
Primary source
Read the full article at VATITThis summary was published on VATfaqs.com on 20 June 2026. It relates to VAT developments in United Kingdom. The original source is VATIT.
