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Changes to the VAT penalty system

Currently, if you fail to file a VAT return or make the payment, there are no penalties for the first late payment, and if you then file & pay on time for the next 12 months nothing happens. However, if you then late file or pay again during this period you will get a penalty which is a percentage of the VAT you owe. This is unlike a lot of other HMRC penalties which are fixed rates.

vat penalty

We always recommend that clients pay VAT before any other taxes when they are having cashflow issues. There are two reasons for this. Firstly, if you are one day late you get the same penalty as someone who is a month late. Secondly, if you have a large VAT bill then these penalties can be significant for the taxpayer.

Changes from April 2022

From April 2022, there will be separate penalties charged for late filing and late payment. Additionally, the penalties will increase in stages that will punish those who file or pay significantly later than those who miss deadlines by a few days. A key feature of the new system is that it will no longer be possible to avoid a late filing penalty if the VAT is paid on time, or if the return shows a repayment is due.

New late submission penalty 

HMRC will issue a single penalty point for a late submission of a VAT return and, once the business has exceeded a points threshold for multiple missed returns, a flat penalty of £200 will be imposed for each late return.

New late payment penalties 

This will be a two-part penalty. The first charge will be imposed at 2% of the outstanding tax if the tax due on a return remains unpaid 15 days after its due date. If any of this tax is still unpaid after 30 days, the penalty increases to 4% of the tax still outstanding at that point. The second charge is a daily penalty (set at 4% per year on the outstanding amount) starting from 31 days after its due date until the business pays the tax that is due.

Count On Cardens

Hopefully, you will never be issued with one of these penalties, but we wanted to make everyone aware of these changes so no one gets caught out. If you have any questions on this, please feel free to contact your client manager.


Client Area

Tax Investigations Protection