Understanding VAT late submission penalties

Jul 3, 2024

When managing your business finances, staying on top of VAT submissions is crucial. Missing the deadline for these submissions can lead to penalties, which can be a headache for any business, big or small. 


VAT, or Value Added Tax, is a consumption tax placed on a product whenever value is added at each stage of the supply chain, from production to the point of sale. The amount of VAT that the user pays is based on the cost of the product, less any of the costs of materials used in the product that have already been taxed.


What are VAT late submission penalties?

HMRC imposes penalties for late VAT returns to encourage timely compliance, which helps maintain the integrity of the tax system. Understanding these penalties is important for maintaining your business’s financial health.

How does HMRC calculate penalties?

If you file your VAT return or pay the VAT owed after the deadline, HMRC will record a ‘default’. The penalties depend on how many times you have defaulted within a 12-month period. The more defaults, the higher the penalty percentage of your outstanding tax. Here’s how it breaks down:


  • First default: No penalty unless you default again within the next 12 months.
  • Second default: 2% of the VAT outstanding.
  • Third default: 5% of the VAT outstanding.
  • Fourth default: 10% of the VAT outstanding.
  • Fifth and subsequent defaults: 15% of the VAT outstanding.


It’s important to note that if the VAT owed is paid within 30 days of the deadline, HMRC may not charge a penalty. However, repeated defaults can lead to increased penalties, so it’s critical to stay on schedule.

What factors affect the severity of penalties?

Several factors can influence the severity of your VAT late submission penalties. These include:


  • Frequency of defaults: As mentioned, the more frequently you miss VAT deadlines, the steeper the penalties become.
  • Amount of VAT due: Higher amounts of unpaid VAT can lead to more severe penalties.
  • Previous compliance history: If you have a history of timely VAT submissions, HMRC might be more lenient if you default occasionally.
  • Reasons for the default: If you can provide a reasonable excuse for missing a deadline, such as illness or loss of financial records due to unforeseen circumstances, HMRC may consider waiving the penalty.

Tips to avoid VAT late submission penalties

To help ensure you meet VAT deadlines and avoid penalties, consider implementing the following practices:

  • Maintain good records: Accurate and up-to-date financial records are key. This not only helps with preparing your VAT return, but also provides evidence of your intent to comply in case of disputes.
  • Set reminders: Use calendar alerts or financial software to remind you of upcoming VAT deadlines.
  • Understand your VAT responsibilities: Stay informed about the latest VAT regulations and how they apply to your business. This will help you avoid common pitfalls.
  • Use accounting software: Many businesses benefit from accounting software that automates aspects of the VAT return process, reducing the risk of errors and late submissions.
  • Seek professional advice: If you’re unsure about any aspect of VAT submission, consulting with an accounting professional can provide clarity and peace of mind.

How we can help

At EV Accountants, we understand that managing VAT and staying compliant with HMRC requirements can be challenging. Our team is equipped to help you manage your VAT submissions efficiently, ensuring that you meet all deadlines and minimise the risk of penalties. We offer comprehensive VAT services, from planning and administration to dispute resolution and consulting.


Our goal is to support your business’s financial health, allowing you to focus on what you do best – running your business.

Get in touch for support regarding VAT.

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