What happens if my VAT Return is late?

For most businesses, you will (if you are VAT registered) need to submit a VAT return every 3 months. HMRC allocate your VAT quarters so you will have to look at your VAT registration certificate to determine which quarters you have been allocated. You can find out how to do that here - https://www.annetteandco.co.uk/when-is-my-vat-return-due/

The VAT return is then used to determine how much VAT you owe the government or what your VAT refund from HMRC will be. Needless to say, VAT return submissions are incredibly important.

Submitting your return

A VAT return is simple enough to fill out and must be done online.

The deadline for submission is one month and 7 days after the end of your VAT quarter, and if you are not sure, your VAT online account lists return and deadline information.

This information is detailed and includes when your VAT return is due and when the payment must be cleared through the bank account of HMRC. Now, this may all sound easy enough but let’s be honest: life happens.

Running a business is no easy task, especially if you have responsibilities outside of work like most of us, and it can sometimes affect our ability to get every task done on time. However, if you forget, or are unable, to submit your VAT return on time, and it ends up that your VAT return is late, then, particularly if it is the first time, you shouldn’t panic yet.

However, if you are habitually late, there could be some serious financial consequences.

If both your VAT return and the full VAT amount (the payment) are not received by HMRC by the deadline date then you can be subject to both a surcharge period and penalty fees.

VAT Penalties

From January 2023, HMRC has introduced a new regime for VAT registered businesses who submit their returns late or make payments late.

This is applicable for VAT periods starting on or after 1st Jan 2023.

Late submission penalties now work on a points-based system.

For each return you submit late you will receive a penalty point.

Once you’ve reached a penalty point threshold, you’ll receive a £200 penalty and a further £200 penalty for each subsequent late submission while you’re at the threshold.

If you submit your VAT returns quarterly (like the majority of businesses) then the penalty points threshold is 4. (If you submit annually then the penalty point threshold is 2)

Here is an example:

A company submits their VAT Return quarterly. This means their penalty point threshold is 4.

They already have 3 penalty points because they submitted 3 previous returns late.

They submit their next return late and get a fourth penalty point. Because they’ve reached the penalty point threshold, they receive a £200 penalty.

The company submits their next return on time. They stay at threshold of 4 penalty points but do not get a £200 penalty.

The company submits their next return late. As they’re still at the penalty point threshold of 4 points, they receive another £200 penalty.

When the penalty points are not applied

The late submission penalty rules do not apply to your:

• first VAT return if you’re newly VAT registered

• final VAT return after you cancel your VAT registration

• one-off returns that cover a period other than a month, quarter or year

For example, you might make a one-off return covering a four-month period because you changed from submitting quarterly to annually.

How the penalty points work with late payments

Late payment penalties can apply to any payments of VAT not paid in full by the relevant due date

For late payment penalties, the sooner you pay the lower the penalty amount will be.  You can propose a payment plan at any time which could mean you receive lower or no penalties.

From the first day your payment is overdue, until you pay in full, you will be charged late payment interest.

You will receive a first late payment penalty if your payment is 16 or more days overdue.

When your payment is 31 or more days overdue, you get a larger first late penalty, and a second late permeant penalty.

To avoid late payment penalties, before day 16 you should either pay in full, or arrange a payment plan with HMRC. 

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