FAQ: How do VAT late payment penalties work?

VAT Payment Submission

The new VAT late payment penalties aim to simplify and provide a fairer system for penalising late payments. Previously, the default surcharge system was in place, which often resulted in businesses facing disproportionate penalties. The new regime also introduces a points-based system for late VAT submissions which is more transparent and consistent. 

If you’re a VAT registered company and you fail to make your VAT payments and submisisions on time you could end up facing late payment penalties. Here’s how it works:

Understanding late payment penalties:

Paying within the first 15 days of the deadline means that you won’t be liable for a penalty or a fine. You’ll be liable for the first late payment penalty if your payment is 16 or more days overdue.

 If your VAT payment is 16-30 days late, you’ll be liable for a penalty of 2% of the amount of VAT you owe, and you won’t be liable for a second late payment penalty. 

If your VAT payment is more than 31 days overdue, you will have to pay 2% of what was outstanding as of day 15, and 2% of what is still outstanding at day 30. You will additionally be liable for a second late payment penalty calculated at a daily rate of 4% per year on what you owe and you will be charged every day until you have paid the remaining amount in full.

First VAT late payment penalty:

  • Payment between 16 and 30 days overdue- Calculated at 2% on the VAT you owe at day 15.
  • Payment 31 days or more overdue- Calculated at: 2% of what was outstanding at day 15 plus 2% of what is still outstanding at day 30.

Second VAT late payment penalty:

  • Payment up to 15 days overdue- None
  • Payment between 16 and 30 days overdue- None
  • Payment 31 days or more overdue- Calculated at: a daily rate of 4% per year on the outstanding balance and charged every day from Day 31 until the outstanding balance is paid in full.

Understanding late submission penalties:

You must send a VAT Return by the deadline for your accounting period otherwise you could face having to pay a late submission penalty. Your accounting period is the period for which you need to send a return to HMRC, for example, quarterly.

How VAT late submission penalties work:

Unlike VAT late payment penalties, VAT late submission penalties work on a points-based system whereby for each return you submit late, you’ll receive a penalty point until you reach the penalty point threshold.

When you reach the threshold, you’ll receive a £200 penalty. You’ll also receive a further £200 penalty for each subsequent late submission while you’re at the threshold.

The penalty point threshold is set by your accounting period and is the maximum points you can receive without facing a penalty. It works as follows:

Accounting period and penalty point threshold:

Annually- 2

Quarterly- 4

Monthly- 5


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.

We’re here to help!

Grappling with the complexities of VAT late payment and submission penalties can be confusing, but you don’t have to deal with it alone!

Staying informed and prepared is key to navigating these changes successfully. The Nordens team of chartered accountants and advisors is here to help you understand the tax rules and ensure your business doesn’t get caught out.

If you need assistance with VAT or any other accounting services, look no further than Nordens Chartered Accountants. Contact us today at 0208 530 0720 or fill out our contact form to schedule a consultation.