What Are The Penalties For Late VAT Returns?

VAT penalties

Managing VAT (Value Added Tax) obligations responsibly is crucial for any business. However, if VAT returns are submitted late, or payments are delayed, the consequences can be costly. Understanding the VAT penalties associated with these lapses is essential for ensuring compliance and avoiding unnecessary financial strain. In this article, we’ll explore the specific penalties for late VAT returns and late payments, helping you understand the importance of timely compliance and how to avoid these common pitfalls.

Let’s take a look at the penalties for late VAT returns…

Penalty Points for Late VAT Return Submissions

The UK uses a points-based system to penalise late VAT return submissions, which was introduced to encourage timely filings. Here’s how it works:

Accumulation of Points – Each late submission incurs a penalty point. These points accumulate over time if the problem persists.

Penalty Threshold – Once a certain threshold of points is reached, a financial penalty is applied. The threshold varies depending on the frequency of your required submissions (e.g., monthly, or quarterly).

Resetting the Points – Points remain on the business’s record for a compliance period of two years after the month in which the last penalty was incurred. If no further late submissions occur during that period, the points will reset to zero.

This system is designed to be progressive, penalising repeat offenders more severely than those who miss a deadline only occasionally.

Penalties for Late Payments of VAT

In addition to VAT penalties for late submissions, businesses can also face penalties for late payments of VAT. These are separate from the penalties for late submissions and can accumulate quickly:

Initial Penalty – If VAT is not paid by the due date, an initial penalty can be charged as a percentage of the VAT due. This percentage increases if the payment continues to be delayed beyond 15 days.

Continued Non-payment – After 30 days, an additional penalty may be imposed, further increasing the financial burden.

Interest Charges – As well as VAT penalties, interest may also accrue on the unpaid amounts, compounding the financial impact on the business.

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Avoiding Penalties

To avoid these penalties, it’s crucial to manage VAT responsibilities carefully by:

Using Reminders – Implementing a reliable system of reminders can safeguard against missing important VAT deadlines. This can involve setting up digital calendar alerts that notify you a few days before the submission and payment deadlines. Consider multiple reminders, such as a two-week, one-week, and one-day prior alert, to ensure ample preparation time. This approach reduces the risk of last-minute complications that could delay timely compliance.

Automating Processes – Using advanced accounting software that has VAT management can drastically reduce the burden of manual calculations and submissions. These systems not only calculate VAT due based on your transactions but can also automate the submission of returns directly to HMRC. This technology minimises human error and frees up resources, allowing businesses to focus more on core activities rather than administrative tasks. It also ensure you comply with Making Tax Digital rules.

Staying Informed – VAT regulations can change, so knowledge is a powerful tool in ensuring compliance and preventing unintentional breaches that lead to VAT penalties.

Staying informed about these updates is crucial and you can do this by regularly reviewing the HMRC website, subscribing to tax-related newsletters, and attending relevant webinars or training sessions to help you keep ‘in the know’ about any changes that might affect your VAT responsibilities.

Seeking Professional Advice – For many businesses, particularly those experiencing growth or facing complex VAT scenarios, consulting with a tax professional or accountant is strongly recommended. A qualified accountant can offer personalised advice that considers the specifics of your business. They can help you understand how to apply VAT laws, suggest ways to improve your accounting practices, and even represent you in communications with HMRC if disputes arise.

Having Regular Financial Reviews – Regular financial reviews can help businesses identify potential issues early on and adjust their practices accordingly. These reviews should assess the accuracy of VAT records, the effectiveness of current accounting software, and the adequacy of cash reserves to cover VAT liabilities. By regularly evaluating these areas, business owners can make informed decisions that ensure ongoing compliance and financial health.

A Bonus Tip To Avoid VAT Penalties– Super simple and one of those that our accountants love and highly recommend implementing. Implement this tip and avoid VAT penalties easily.

Late VAT returns and payments can lead to significant VAT penalties, making an already challenging financial obligation even more burdensome. By understanding the implications of late actions and implementing robust processes to ensure timely compliance, businesses can avoid these VAT penalties and maintain a healthier financial status.

Always prioritise your VAT obligations, and don’t hesitate to book a call with Joanna Bookkeeping for support, tailored insights, and strategies built on experience. Get in touch with our Oxford accountant and let’s drive your business with confidence.

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