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Paying VAT Late Penalties: Deadlines and Alternatives


HMRC has implemented a penalty points system for the tardy or non-submission of your limited company VAT Return, replacing the previous VAT Default Surcharge scheme as of 2023. Under this updated framework, penalty points will accumulate until the designated threshold is reached. Upon reaching this threshold, a £200 fine will be imposed, accompanied by an extra £200 penalty for each subsequent delayed submission.

Is there a fine if I pay my VAT late after the deadline?

Failing to meet the VAT deadline results in the accumulation of penalty points. This penalty system is applicable for accounting periods commencing on or after 1 January 2023. The accrual of penalty points persists until a predetermined threshold is reached, triggering a £200 fine. Subsequent to this, an additional £200 fines will be incurred until your VAT account is brought up to date. This approach supersedes the previous system where an instantaneous fine or a Surcharge Liability Notice was issued based on your VAT payment history. If immediate funds are unavailable to rectify your account, engaging with HMRC to explore the possibility of a Time to Pay (TTP) arrangement is an option worth considering.

Penalty Points System for the late VAT returns

In grasping the late VAT Returns Penalty Points System, it’s crucial to note that HMRC allows a degree of leniency. For the first instance of a late VAT submission within a 12-month span, a penalty point is issued, serving as a cautionary measure. HMRC acknowledges the importance of not unduly burdening businesses with immediate financial repercussions, hence this initial leniency. This initial penalty point serves as a reminder that the VAT payment is overdue, emphasizing the necessity to bring the account up to date. Failure to heed this warning results in the issuance of additional penalty points, leading to subsequent financial penalties.

Penalty Point Threshold for different late VAT periods of submission

The imposition of £200 fines through the Penalty Point Threshold is contingent upon the frequency of your VAT Return submissions, which is determined by your accounting period. The threshold varies based on the submission frequency:

  • Annually: The threshold triggering £200 fines is set at 2 penalty points.
  • Quarterly: A threshold of 4 penalty points initiates the imposition of £200 fines.
  • Monthly: The £200 fines come into effect once the penalty points reach a threshold of 5.

This structured approach aligns the penalty system with the unique demands of different accounting periods, emphasizing the importance of timely VAT submissions to avoid financial penalties.

How to remove VAT Penalty Points

The process of removing VAT Penalty Points hinges on whether or not you have reached the threshold. In cases where the threshold hasn’t been met, penalty points will naturally expire. For VAT Returns submitted on a deadline other than the last day of the month, points automatically expire on the last day of the month, 24 months after their initial award. However, if the submission deadline coincides with the last day of the month, points will expire on the last day of the month, 25 months post-issuance.

For those who have reached the threshold, the removal of points necessitates a dual-pronged approach:

  1. Submission of Outstanding VAT Returns: Clearing all outstanding VAT Returns spanning the preceding 24 months is a prerequisite for point removal.
  2. Completion of a ‘Period of Compliance’: Undertaking a ‘period of compliance’ mandates timely submission of all returns throughout this defined period. The duration of this compliance period varies – 24 months for annual return filers, 12 months for quarterly return submitters, and 6 months for those adhering to a monthly submission schedule. This dual requirement underscores the importance of consistent and punctual compliance to rectify penalty points.

How to prevent late VAT payments?

To avert the pitfalls of late VAT payments, it is imperative to delve into the underlying causes of these delays promptly. Missing or delaying VAT payments can serve as a red flag, signalling potential financial challenges that, if left unaddressed, could jeopardize the overall viability of the company.

Late VAT payments are often traced back to broader cash flow issues within the company. Given that VAT is collected from customers on behalf of HMRC, the funds for VAT payments should ideally already be earmarked when the bill comes due. However, instances of payment delay often arise when these funds haven’t been adequately set aside for their intended purpose. Instead, they may have been utilized to cover other business expenses and overheads, reflecting a critical oversight in financial management. Addressing these root causes is paramount to establishing a sustainable and timely VAT payment system.

Options if you can’t pay your VAT

In the event of falling behind on VAT payments with an inability to promptly settle the full amount owed, opting for a Time to Pay Arrangement (TTP) emerges as a viable solution. A TTP allows a company to address its tax arrears through a structured series of monthly repayments, alleviating the immediate burden of paying the entire sum in one go.

Typically spanning no more than 12 months, these TTPs require businesses to meet their ongoing VAT and tax obligations concurrently with the agreed-upon monthly repayment amount designated for settling VAT arrears. While such an arrangement can serve as an effective means for a company to recover from a temporary setback, it is crucial to note that sustaining this payment plan relies on the company’s ability to address underlying financial concerns. If persistent financial challenges persist, meeting the required payments for such an arrangement may prove challenging, necessitating a holistic approach to financial stability.

How expert guidance will help with paying VAT late?

Engaging professional guidance becomes crucial when confronted with the complexities of late VAT payments. Unfortunately, various challenges may contribute to a company’s struggles in this regard, and HMRC may not always display the flexibility one might hope for. Effectively communicating the circumstances behind delayed filings or payments is imperative, and HMRC tends to accept very few reasons as valid.

While certain catastrophic events, such as a fire leading to the loss of all company records, could be considered justifiable, HMRC typically expects payment to be made promptly. In situations where explanations are required, seeking the assistance of a licensed insolvency practitioner proves beneficial. Such professionals can act as intermediaries, advocating on behalf of the company to secure additional time and liaise with HMRC, providing a valuable buffer to navigate the complexities surrounding late VAT payments.

Substitute Way for Time to Pay (TTP)

In situations where a Time to Pay (TTP) arrangement is not feasible, whether due to a shortage of funds or HMRC’s reluctance to accept the proposed payment plan, consulting with a licensed insolvency practitioner becomes essential. These professionals can guide you through available alternatives and recommend the most suitable course of action tailored to your specific circumstances.

One viable option may involve initiating a formal insolvency procedure to orchestrate a turnaround for the company. This could be achieved through a process known as a Company Voluntary Arrangement (CVA). A CVA affords the company the opportunity to restructure its existing liabilities and negotiate with creditors, striving for a mutually beneficial arrangement. This allows the company to continue trading while addressing its debts in an affordable manner. Notably, all types of creditors, including HMRC, can be included in a CVA, ensuring comprehensive resolution of VAT arrears as part of the overall process.

Alternatively, exploring access to business funding presents another avenue. This approach can provide the necessary financial injection to bolster ongoing cash flow or serve as a vital lifeline to steer the company back on course. Assessing these alternatives under the guidance of a licensed insolvency practitioner ensures a strategic and informed decision-making process.

Why does professional assistance matter?

Exercise caution to avoid raising red flags when your company encounters challenges in meeting VAT payment deadlines. Seeking professional assistance is crucial in such scenarios, as delayed payments can signal to HMRC a potential insolvency issue within your company. Should HMRC perceive this financial instability, it may initiate winding-up proceedings to halt trading activities and prevent the accumulation of further debts.

Engaging insolvency practitioners becomes instrumental in averting potential problems and establishing a robust plan before the situation spirals out of control. Whether your objective is to salvage the company or explore orderly closure, Real Business Rescue offers invaluable assistance. Our nationwide team of licensed insolvency practitioners is readily available to provide expert guidance, ensuring you have the necessary insights to make informed decisions for the future of your company. Call today to schedule a free, no-obligation consultation and gain the support needed to navigate these challenging circumstances.


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