What are the penalties for paying VAT late?

HMRC will assign penalty points for the delayed or non-submission of your limited company VAT Return. This system, introduced in 2023, replaced the VAT Default Surcharge scheme. Under the updated system, penalty points accumulate until reaching the threshold, triggering a £200 fine. Further fines of £200 each apply for subsequent late submissions.


What happens when you miss a VAT deadline?

Late submission of your VAT Return to HMRC results in the accumulation of penalty points for accounting periods starting on or after 1 January 2023. Points accrue until reaching a threshold, triggering a £200 fine. Additional £200 fines persist until your VAT account is current.

This scheme replaces the previous system where instant fines or a Surcharge Liability Notice were issued based on VAT payment history.

If immediate funds are unavailable to update your account, discussing the potential for a Time to Pay (TTP) arrangement with HMRC is one option.


Understanding the late VAT Returns Penalty Points System

The key point to consider is that HMRC does allow some level of ‘forgiveness.’ If it’s your first late submission of VAT within a 12-month period, you will receive a penalty point, serving as a warning. HMRC aims to avoid pushing businesses into deeper debt, allowing some flexibility initially before taking more stringent measures.

This initial penalty point serves as a reminder that the VAT amount is overdue, emphasising the need to update your account. Failure to heed this warning will result in additional points and the imposition of financial penalties.


The Penalty Point Threshold for Late VAT Returns and Payments

The point at which your penalty points trigger £200 fines depends on the frequency of your VAT Return submissions and your accounting period.

Accounting Period

Penalty Points Threshold







Removing VAT Penalty Points

If you haven’t reached the threshold, penalty points automatically expire on the last day of the month, 24 months after their initial award, unless the VAT Return deadline was the last day of the month. In the latter case, they expire on the last day of the month, 25 months after issuance.

For those at the threshold, points can only be removed by:

  • Submitting all outstanding VAT Returns for the past 24 months
  • Completing a ‘period of compliance,’ where timely submission of all returns is required. The duration varies, with 24 months for annual returns, 12 months for quarterly returns, and 6 months for monthly submissions.


What can I do to prevent late VAT payments?

Missed or late VAT payments always have underlying reasons, and it’s crucial to urgently identify the root cause. Delayed VAT payments may indicate deeper financial issues that could severely impact the overall viability of the company if corrective measures are not taken promptly.

A shortage of funds to pay VAT often signals broader cash flow challenges within the company. Since VAT is collected by a company from its customers on behalf of HMRC, the funds should ideally be available to settle the bill upon arrival. In cases where a company struggles to pay, it is often because these funds have not been properly allocated for their intended purpose and have instead been used to cover other business expenses and overheads.


What are my options if I have fallen behind on paying VAT?

If you’ve fallen behind on your VAT responsibilities and can’t immediately repay the full amount owed, a Time to Pay Arrangement (TTP) might be suitable. TTP allows a company to settle tax arrears through monthly repayments instead of a lump sum.

These plans typically span no more than 12 months, requiring ongoing compliance with VAT and tax obligations alongside the agreed repayment to address VAT arrears. While this arrangement can be beneficial for recovering from a temporary setback, ongoing financial concerns may pose challenges in maintaining the required payments.


Why Professional Guidance Can Help When Paying VAT Late

Dealing with late VAT payments can present various challenges for a company, and HMRC may not always offer the leniency one might hope for. It is sometimes essential to communicate the circumstances leading to late filings or payments, although HMRC has limited acceptable reasons.

For instance, a significant event like a fire causing the loss of all company records might be considered a valid cause. However, in the absence of a catastrophic event, HMRC generally expects timely payments. Seeking assistance from a licensed insolvency practitioner can often help in negotiating additional time and acting as an intermediary with HMRC.


Alternatives to a Time to Pay

In cases where a Time to Pay arrangement is not feasible, whether due to a lack of funds or HMRC’s reluctance to accept the proposed plan, a licensed insolvency practitioner can guide you through the available options and recommend the most suitable course of action.

This may involve initiating a formal insolvency procedure to turn the company’s fortunes around, often achieved through a process called a Company Voluntary Arrangement (CVA). A CVA allows the company to restructure its current liabilities and negotiate with creditors for a mutually beneficial arrangement, enabling the company to continue trading while managing its debts affordably. All types of creditors, including HMRC, can be included in a CVA, addressing VAT arrears as part of the process.

Alternatively, securing business funding could support ongoing cash flow or provide the necessary financial boost to set the company on a path to recovery.

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Beware of Sending Up Red Flags

Seeking professional assistance when your company struggles to pay VAT on time is crucial because it signals to HMRC that insolvency may be a concern. If HMRC perceives this, it might initiate winding-up action to prevent further debts from accumulating by compelling your company to cease trading.

Insolvency practitioners can assist in averting potential issues and establishing a robust plan before the situation spirals out of control. Whether you aim to salvage your company or explore orderly closure options, Vanguard Insolvency is here to help. Our nationwide team of licensed insolvency practitioners is available to offer expert guidance and advice, enabling you to make the best decision for your company’s future. Call today to arrange a free, no-obligation consultation.

David Jackson MD
Senior Partner at Vanguard Insolvency Practitioners | Website

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.