These rules apply to VAT periods starting on or after 1 January 2023. For earlier periods, the old default surcharge applies (see the end of this guide).
To work out what you owe, use the VAT penalty calculator. Enter the amount, the due date and the date you paid. It shows each penalty and the interest.
How do penalty points work for late returns?
Each VAT return you submit late gets one penalty point. Points alone cost nothing. When you reach the threshold for how often you file, you get a £200 penalty. Every late return after that costs another £200 while you stay at the threshold.
| How often you file | Points threshold | Period of compliance to reset |
|---|---|---|
| Annually | 2 | 24 months |
| Quarterly | 4 | 12 months |
| Monthly | 5 | 6 months |
Nil returns and repayment returns count too. A return showing nothing to pay still earns a point if it is late. Your deadline is usually 1 month and 7 days after the end of the period. Check yours with the VAT deadline calculator.
How points go away
Below the threshold, each point expires after about 24 months, counted from the month after the late return.
At the threshold, points do not expire on their own. You get back to zero by meeting two conditions:
- File every return on time for the period of compliance in the table (12 months for quarterly filers).
- Make sure every return due in the previous 24 months has been submitted.
Then all your points are wiped. Nothing else resets them, including paying a £200 penalty.
Example
A quarterly filer is late with three returns over two years. They have 3 points and no fine. The fourth late return takes them to 4 points and a £200 penalty. The fifth late return costs another £200. To clear the points, they must then file four quarterly returns in a row on time, with no missing returns from the last 24 months.
How much is the late payment penalty?
Nothing if you pay within 15 days of the due date. Pay later and HMRC charges 3% of what was unpaid at day 15, then 3% of what was unpaid at day 30. From day 31 a second penalty adds 10% a year, worked out daily.
- Up to day 15 after the due date: no penalty, though interest still runs.
- Day 16 to day 30: 3% of what was unpaid at day 15.
- Day 31 or later: 3% of what was unpaid at day 15, plus 3% of what was unpaid at day 30.
- From day 31 until paid: a second penalty at 10% a year, worked out daily on the amount still unpaid.
These rates went up on 1 April 2025. Before that they were 2%, 2% and 4% a year.
Paying part of the bill early cuts the first penalty. Each part is worked out on what is still outstanding at day 15 and at day 30.
How is late payment interest worked out?
Late payment interest runs from the day after the due date until you pay, on top of any penalty. The rate is Bank Rate plus 4%, which is 7.75% as of 4 October 2026. The margin rose from 2.5% to 4% on 6 April 2025.
If HMRC repays you late, it pays repayment interest at Bank Rate minus 1%, with a floor of 0.5%. That is 2.75% now. Check any period with the HMRC interest calculator.
Worked example: £10,000 paid 40 days late
Say £10,000 of VAT was due on 7 May 2026 and you pay it all on 16 June 2026. That is 40 days late. Day 15 was 22 May and day 30 was 6 June, and nothing had been paid by either date. Using the rates in force in May and June 2026:
First penalty, day 15 part3% of £10,000 = £300.00
First penalty, day 30 part3% of £10,000 = £300.00
Second penalty, days 31 to 40£10,000 × 10% × 10 ÷ 365 = £27.40
Interest, 40 days£10,000 × 7.75% × 40 ÷ 365 = £84.93
Total£300.00 + £300.00 + £27.40 + £84.93 = £712.33
Paying the same bill on day 14 (21 May 2026) would have cost only interest: £10,000 × 7.75% × 14 ÷ 365, which is £29.73.
How does Time to Pay affect penalties?
A Time to Pay arrangement lets you pay HMRC in instalments. It stops late payment penalties growing from the day you proposed it, as long as you keep to it. Ask within the first 15 days and you can avoid late payment penalties entirely. Interest still runs.
If you cannot pay in full, contact HMRC before the deadline and ask for one. Interest runs for the whole time you are paying.
If you break the arrangement, penalties can start again. Set the instalments at a level you can afford, not the most HMRC will accept.
Can you appeal a VAT penalty?
Yes. You can appeal against a penalty point, a late filing penalty or a late payment penalty. You normally have 30 days from the penalty decision to ask HMRC for a review or appeal to the tax tribunal. The main ground is reasonable excuse.
If a point is cancelled on appeal, any fine that point triggered goes too.
A reasonable excuse is something unexpected and outside your control that stopped you filing or paying on time. You must also have put it right as soon as you could.
Usually accepted:
- a serious or life-threatening illness
- the death of a partner or close relative shortly before the deadline
- an unexpected stay in hospital
- fire or flood
- a failure of HMRC's own online service
Usually refused:
- not having the money, unless something unexpected caused it
- relying on someone else who let you down
- finding the software hard to use
- not getting a reminder from HMRC
The old default surcharge (periods before 2023)
For VAT periods that started before 1 January 2023, late returns and payments come under default surcharge. A first default puts you in a 12 month surcharge period with no charge. Each further default in that period extends it and adds a surcharge as a percentage of the unpaid VAT.
| Default within the surcharge period | Surcharge |
|---|---|
| First | None (warning notice only) |
| Second | 2% |
| Third | 5% |
| Fourth | 10% |
| Fifth and later | 15% |
Businesses with turnover under £150,000 got a letter offering help instead of the 2% and 5% surcharges. You only need this table if HMRC is still chasing a pre-2023 period.
What to do next
- File any missing return now. Points and fines build up until every return from the last 24 months is in.
- Pay as soon as you can. Day 15 and day 30 each add a penalty, and interest grows every day.
- If you cannot pay in full, ask HMRC for Time to Pay before day 15.
- Work out your own figures with the VAT penalty calculator and the HMRC interest calculator.
- Read HMRC's guidance on penalty points and penalties if you submit your VAT return late and how late payment penalties work if you pay VAT late.
This guide is general information. Check gov.uk or ask an accountant about your own case.
Questions
What is the penalty for a late VAT return?
A late VAT return earns one penalty point. When you reach the points threshold (4 for quarterly filers), you get a £200 penalty, and another £200 for each late return after that.
What is the penalty for paying VAT late?
Nothing for the first 15 days. Then 3% of the unpaid amount at day 15, another 3% at day 30, and 10% a year daily from day 31. Interest at 7.75% runs from the first day.
Do nil VAT returns get penalty points?
Yes. A nil or repayment return submitted late still earns a point.
Does Time to Pay stop VAT penalties?
It stops late payment penalties growing from the day you propose it, if you keep to it. It does not stop interest.
How long do VAT penalty points last?
About 24 months if you stay below the threshold. At the threshold, they last until you complete your period of compliance.
Figures in this guide come from our rules file, last checked against HMRC on 4 October 2026.
