VAT Penalty Points Explained: How They Work (2026)

Last updated: October 2026.

Since January 2023, HMRC has used a points system for late VAT returns. It replaced the old default surcharge. This guide explains how the points work, the £200 penalty, how points expire and how to clear them. It then covers the separate penalties for paying VAT late and the interest HMRC charges.

How do VAT penalty points work?

Late submission penalties apply to VAT accounting periods starting on or after 1 January 2023. GOV.UK's guidance sets out the rules:

• You get one penalty point for each return you submit late, until you reach the penalty point threshold.
• The rule covers nil returns and repayment returns too.
• When you reach the threshold, you receive a £200 penalty.
• You then receive a further £200 penalty for each later late submission while you stay at the threshold.

Three kinds of return are outside the late submission rules: your first VAT return if you are newly registered, your final return after you cancel your registration, and one-off returns that cover a period other than a month, quarter or year.

Penalty points belong to the VAT registration. If you take over a VAT-registered business as a going concern, its points do not pass to your registration.

How many penalty points before a VAT penalty?

The threshold depends on how often you file. GOV.UK sets it by accounting period.

If HMRC has agreed a non-standard accounting period, different rules apply. A period over 20 weeks is treated as annual with a threshold of 2. A period over 8 weeks and up to 20 weeks is treated as quarterly with a threshold of 4. A period of 8 weeks or less is treated as monthly with a threshold of 5.

If you agree with HMRC to change how often you file, HMRC adjusts your threshold and your points.

If an adjustment gives you a minus figure, HMRC sets your points to zero. You cannot appeal an adjustment to your points.

When is a VAT return late?

GOV.UK says the deadline for submitting your return online is usually one calendar month and 7 days after the end of the accounting period. That is also the deadline for paying HMRC. You must submit the return, and the payment must reach HMRC, on or before the deadline, even if it falls on a weekend or bank holiday.

For a company on calendar quarters, HMRC's own examples give these deadlines:

Other quarter patterns follow the same rule of one calendar month and 7 days. VAT-registered businesses should now be signed up for Making Tax Digital for VAT, which means you file through compatible software. Our guide to Making Tax Digital explains the service.

Worked example: a quarterly filer reaches the threshold

Take a company that files VAT quarterly. Its threshold is 4 points. This table follows eight returns. The company is illustrative, but the rules are HMRC's.

The fourth late return takes the company to the threshold and triggers the first £200. The next return is on time, so it stays at 4 points and pays nothing. The one after is late, so it pays a second £200. In total the company has paid £400 in late submission penalties.

This follows the pattern in GOV.UK's own example for a quarterly filer. At the end of the table the company is still at 4 points. Points do not expire on their own while a company is at the threshold.

How do VAT penalty points expire?

It depends on whether you have reached the threshold. GOV.UK explains the rules.

Below the threshold. Each point expires on its own. If the deadline for the late return was not the last day of a month, the point expires on the last day of the month, 24 months later. If the deadline was the last day of a month, it expires on the last day of the month, 25 months later. A point for a return due on 7 May 2024 expires on 31 May 2026. A point for a return due on 7 November 2024 expires on 30 November 2026.

At the threshold. Points do not expire. You can only remove them by meeting two conditions together:

• Condition A: complete a period of compliance, in which you submit every return by its deadline.
• Condition B: submit all outstanding returns for the previous 24 months.

Meeting both conditions removes all your points. You can also use them below the threshold to clear points sooner than waiting 24 months.

The period of compliance depends on how often you file.

To find your earliest start, take the day after the missed deadline, then the first day of the following month. A missed deadline of 7 July starts on 1 August. A missed deadline of 31 March starts on 1 May.

In the worked example above, the last missed deadline was 7 February 2026. The company's period of compliance can start on 1 March 2026 and run for 12 months to 28 February 2027. The four returns due in that window are the ones due on 7 May 2026, 7 August 2026, 7 November 2026 and 7 February 2027. If the company files all four on time and has nothing outstanding for the previous 24 months, its points reset to zero.

What is the penalty for paying VAT late?

A late payment is a separate regime. It does not use points. Late payment penalties can apply to any VAT payment not paid in full by its due date, with two exceptions: payments on account, and instalments for the VAT Annual Accounting Scheme. They can follow a VAT return, a correction or amendment, or an HMRC assessment.

HMRC's guidance sets out two penalties. The sooner you pay, the lower they are.

HMRC also assesses the second penalty just before the two-year assessment time limit if tax is still unpaid. These rates apply to VAT for accounting periods starting on or after 1 April 2025. Periods that began before that date keep the older, lower rates (see below).

You can propose a payment plan at any time. If HMRC agrees a Time to Pay arrangement, it can mean lower or no late payment penalties. If you break the arrangement, HMRC may cancel it and charge both penalties as if it had never existed. Our HMRC payment plan guide explains how to ask.

How much interest does HMRC charge on late VAT?

HMRC charges late payment interest on top of any penalty. GOV.UK says it runs from the first day the payment is overdue until the day you pay in full. The rate is the Bank of England base rate plus 4%.

HMRC's interest rates page shows the late payment rate at 7.75% from 9 January 2026. That is Bank Rate of 3.75% plus 4%. The Bank of England held Bank Rate at 3.75% on 17 September 2026. Its next decision is due on 5 November 2026, so the rate could change.

Interest is also charged on overdue penalties, including late payment penalties and late submission penalties. You cannot appeal a late payment interest charge. You can object if HMRC made a mistake or caused unreasonable delay, if you dispute the relevant date, or if you question the legislation. You can only object once you have paid the tax in full.

Worked example: VAT paid late

A company owes £6,400 of VAT for the quarter ended 30 September 2026. The return and the payment are due on 7 November 2026. The accounting period began after 1 April 2025, so the current rates apply. Interest is at 7.75%.

The workings:

• 20 days: the first penalty is 3% of £6,400, which is £192.
• 45 days: the first penalty is 3% of £6,400 at day 15 plus 3% at day 30, which is £384. The second penalty runs for the 15 days from day 31 to day 45: £6,400 × 10% × 15 ÷ 365 = £26.30.
• Interest: £6,400 × 7.75% × days ÷ 365. For 45 days that is £61.15.

The table assumes Bank Rate stays at 3.75%. Interest and penalties change if it moves.

A late return and a late payment are separate failures. A company that files its return late and pays late gets a penalty point, possibly the £200 penalty, and the payment penalties and interest.

What changed in April 2025?

Two things became more expensive.

The penalty percentages changed by statutory instrument. The Finance Act 2021 (Increase in Schedule 26 Penalty Percentages) Regulations 2025 apply where the due date is on or after 31 May 2025. For VAT they do not apply to VAT payable by reference to an accounting period that began before 1 April 2025. Those older periods keep the 2% and 4% rates.

The late submission penalty and its thresholds were not part of the April 2025 changes.

Can you appeal a VAT penalty?

Yes. If you receive a late submission point, a £200 penalty or a late payment penalty, HMRC tells you in a penalty decision letter. The letter offers you a review with HMRC. You can choose a review or an appeal to the tax tribunal.

HMRC may cancel or amend a penalty if you have a reasonable excuse. You can check your penalties in your VAT online account and ask for a review there. If you cannot use your online account, you can write to HMRC's Solicitor's Office and Legal Services. GOV.UK gives the address as BX9 1ZT, with no street or city needed.

For the wider picture on missed deadlines, see our guide on what to do when you miss a tax deadline. For the interest side, see our note on HMRC interest rates at 7.75%.

How can you avoid VAT penalty points?

1. Put the deadline in your diary, not the quarter end. The deadline is one calendar month and 7 days after the period ends.
2. File a nil return. A nil return still counts. Late nil returns earn points.
3. File a few days early. A margin protects you from a late login, a software fault or a bank delay.
4. Make the payment reach HMRC by the deadline. GOV.UK says to allow time for it to arrive in HMRC's account.
5. Ask for a payment plan early. A Time to Pay request on or before day 15 avoids the first penalty. A request on or before day 30 avoids the higher penalty from day 31.
6. Keep records clean all quarter. A return built from clean records is quick to file.

How AccountsOS helps

AccountsOS is HMRC-recognised software for Making Tax Digital VAT. Finn keeps your VAT deadline on your list, prepares the return from your books, and files it to HMRC when you say go.

Frequently asked questions

How many VAT penalty points before a fine?

It depends on how often you file. The threshold is 2 for annual filers, 4 for quarterly filers and 5 for monthly filers. Reaching it brings a £200 penalty.

How much is the VAT late submission penalty?

£200 when you reach the threshold, and a further £200 for each late submission while you remain at the threshold. Before the threshold, a late return earns a point and no financial penalty.

How long do VAT penalty points last?

Below the threshold, a point expires on the last day of the month, 24 months after the return's deadline. If the deadline was the last day of a month, it is 25 months. At the threshold points do not expire on their own.

How do I get VAT penalty points removed?

At the threshold you need a period of compliance with every return on time, and all outstanding returns for the previous 24 months filed. The period is 24 months for annual filers, 12 for quarterly and 6 for monthly. You can also use the same route below the threshold.

What is the penalty for paying VAT late?

Nothing for up to 15 days. From day 16 it is 3% of the VAT outstanding at day 15. From day 31 it is a further 3% of the VAT outstanding at day 30, plus a second penalty of 10% a year on the balance, charged daily. These are the rates for periods starting on or after 1 April 2025.

What interest does HMRC charge on late VAT?

Bank of England base rate plus 4%, from the first day the payment is overdue. HMRC's rate was 7.75% from 9 January 2026. It also charges interest on unpaid penalties.

Do nil VAT returns count for penalty points?

Yes. GOV.UK says the late submission penalties apply to nil returns and repayment returns as well. The exceptions are a newly registered business's first return, a final return after deregistering, and one-off returns for an unusual period.

Can I appeal a VAT penalty?

Yes. HMRC's penalty decision letter offers a review, and you can instead appeal to the tax tribunal. A penalty may be cancelled or amended if you have a reasonable excuse. You cannot appeal late payment interest, but you can object on limited grounds.

Sources

• GOV.UK: Penalty points and penalties if you submit your VAT Return late
• GOV.UK: Remove penalty points you have received after submitting your VAT Return late
• GOV.UK: How late payment penalties work if you pay VAT late
• GOV.UK: Late payment interest if you do not pay VAT or penalties on time
• GOV.UK: HMRC interest rates for late and early payments
• GOV.UK: Sending a VAT Return
• GOV.UK: Charge, reclaim and record VAT
• legislation.gov.uk: The Finance Act 2021 (Increase in Schedule 26 Penalty Percentages) Regulations 2025
• Bank of England: Interest rates and Bank Rate

This guide is general information, not tax advice. Check your own position with an accountant or HMRC.