If you are responsible for VAT compliance, VAT penalty points should now be firmly on your radar. Since HMRC replaced the old default surcharge with a points-based regime, repeated late VAT Returns can quickly translate into £200 penalties for your business – and keep coming every time you slip again.
HMRC is also under pressure to close the tax gap. There were 2.73 million VAT and/or PAYE businesses in the UK as of March 2025, up 0.4% on the previous year (ONS, 2025). That is a large population for HMRC to supervise, and penalty systems are one of the tools used to drive behaviour and secure revenue.
From 2025/26 onwards, the combination of VAT penalty points, higher late payment penalties, and daily interest means late returns or payments can become an expensive, avoidable overhead. HMRC’s own guidance makes clear that once your payment is more than 15 days late, percentage-based penalties begin to apply on top of any points you have already earned (HMRC, 2025).
In this article, we recap how VAT penalty points work, explain how they interact with late payment penalties, and set out a practical month-by-month calendar for the 2025/26 year to keep submissions clean and protect cashflow.
Why VAT penalty points matter for 2025/26
The VAT penalty points system is intended to be fairer to businesses that occasionally miss a deadline. A single late return results in one point, not an immediate large fine. However, the regime is unforgiving for repeated lateness.
Once you hit the penalty point threshold for your filing frequency, HMRC charges a £200 penalty – and another £200 for each further late submission while you remain at that threshold (HMRC, 2023). For many SMEs, a string of busy quarters or staff turnover in finance can easily push compliance down the priority list, triggering multiple penalties.
From a governance perspective, this is also a board-level issue. Persistent late filing can:
- Consume management time: Finance and tax staff must deal with HMRC correspondence, reviews, and potential appeals.
- Damage cashflow: £200 per late period, plus late payment penalties and interest, can add up quickly across a group or portfolio.
- Affect HMRC relationship: A record of late filing and payment can influence how HMRC views the overall risk profile of the business.
In short, VAT penalty points are not just a technical detail. They serve as a compliance signal that senior finance leaders should monitor and manage.
How the VAT penalty points system works
HMRC’s points-based system applies to VAT accounting periods starting on or after 1 January 2023 and is fully embedded for 2025/26.. At a high level:
- One point per late return: Each VAT Return filed after the deadline – including nil and repayment returns – usually earns one VAT penalty point.
- Thresholds by frequency: Annual filers reach the threshold at 2 points, quarterly filers at 4 points, and monthly filers at 5 points.
- £200 penalties at threshold: When you reach the threshold, HMRC charges a £200 penalty. Each additional late submission while you are at the threshold generates another £200 penalty.
- Points expiry: If you have not yet reached the threshold, individual points normally expire automatically after around 24 months, depending on the original due date.
- Reset after a compliance period: Once you have reached the threshold, you can only remove all points by completing both a “period of compliance” and submitting all outstanding returns for the previous 24 months. For quarterly filers, the compliance period is 12 months of on-time filing.
In practice, this means that allowing VAT penalty points to build up is risky. Once at the threshold, you are effectively “on notice”: a single missed deadline can trigger another £200 penalty, even if you have made improvements elsewhere.
We can review your VAT filing profile and help you assess your exposure to VAT penalty points as part of a wider accounting and business support review.
Late VAT payments: Penalties, interest and VAT penalty points
VAT penalty points only deal with late submission. They sit alongside – not instead of – the regime for late payment penalties and late payment interest.
Under HMRC’s late payment rules for VAT accounting periods starting on or after 1 January 2023, updated in July 2025, the framework is:
- No penalty if paid within 15 days: You still pay any interest due, but there is no late payment penalty if you clear the VAT within 15 days of the due date.
- 16–30 days late: A first late payment penalty of 3% is charged on the VAT outstanding at day 15.
- 31 days or more late: The first penalty increases to 3% of the balance at day 15 plus 3% of what is still unpaid at day 30. A second penalty then accrues on a daily basis at an annualised rate of 10% until the VAT is paid.
Additionally, HMRC charges late payment interest from the date the VAT becomes overdue until it is paid in full. The combined effect of VAT penalty points, percentage-based late payment penalties, and interest makes a hands-off approach to VAT compliance a costly option.
If cashflow is tight, we can help you look at Time to Pay arrangements, forecasting, and process changes so that VAT penalty points and late payment penalties do not become a recurring cost.
A practical VAT penalty points compliance calendar
Most SMEs file quarterly VAT Returns, although the specific quarter-end months vary. The calendar below assumes standard quarters to 31 March, 30 June, 30 September and 31 December, with the usual one-month-and-seven-days deadline. You can adjust the pattern to match your own VAT periods.
- April: After the 7 April deadline for the March quarter, review whether the return and payment were submitted and paid on time. Record any VAT penalty points showing in your VAT online account.
- May: Carry out a light VAT data review for the new quarter – check bookkeeping backlogs, bank reconciliations and key control accounts so the June quarter is not rushed.
- June: Finalise the June quarter numbers early where possible. Confirm who will physically submit the return and who is responsible for authorising payments.
- July: Aim to submit the June quarter return well before the 7 August deadline. Build in an internal sign-off at least a week before submission to avoid last-minute changes that risk late filing.
- August: Check the HMRC portal for any new VAT penalty points or penalty notices. If a point looks incorrect, consider an appeal or review request promptly.
- September: Update your VAT process notes and internal calendar as teams and responsibilities change, so that knowledge about VAT penalty points does not sit with one person.
- October: For December quarter filers, begin forecasting the quarter’s VAT position to ensure cash is available for timely payments, even during seasonal trading periods.
- November: Review any VAT adjustments (for example partial exemption or capital goods scheme) so they can be built into the December quarter return without delay.
- December: Aim to finalise the December quarter numbers before the holiday period, and diarise review meetings for early January to reduce the risk of missing the 7 February deadline.
- January: Confirm that December quarter returns have been submitted and payments scheduled. Check again for new VAT penalty points and ensure any outstanding historic returns are dealt with.
- February: Conduct a short annual review of VAT returns and points: how many reminders were issued, how close to deadlines you submitted, and whether any process changes are needed.
- March: Build next year’s VAT calendar into your wider compliance timetable. Ensure VAT penalty points are monitored alongside other tax and statutory deadlines.
A written calendar like this, integrated into your finance timetable, is one of the simplest ways to avoid building up VAT penalty points.
Next steps to stay clear of VAT penalty points
VAT penalty points, late payment penalties and interest are now routine parts of HMRC’s toolkit – and they are here to stay. For finance leaders, the question is no longer how the rules work, but whether internal systems are robust enough to avoid repeated slippage.
A modest investment in process – clear ownership of VAT, realistic internal deadlines, and regular checks of your VAT online account – will usually cost far less than a pattern of £200 penalties, percentage-based late payment charges, and interest. With 2.73 million VAT and/or PAYE businesses competing for margin, avoidable VAT costs are a straightforward area to address.
If you are concerned about your VAT position, or have already started to accumulate VAT penalty points, we can help you: review your HMRC correspondence, assess your exposure, build a compliance calendar tailored to your VAT periods, and integrate VAT into your wider tax planning.
To discuss VAT penalty points and set up a practical compliance plan, get in touch with us and we will work with you to keep your VAT submissions clean and your penalty exposure under control.