by Asim Abbas
11 November 2026 
VAT penalties and interest: the points-based system explained
VAT penalties and interest: the points-based system explained
VAT penalties work very differently from the old default surcharge. Late returns earn points, and late payments trigger percentage penalties and daily interest.
- Late returns earn penalty points
- Reach the threshold and pay a £200 penalty
- Late payment penalties of 3% + 3% + 10% a year
- Late payment interest at base rate plus 4%
The same system now applies to Making Tax Digital for Income Tax, so it’s worth understanding even if you’re not VAT registered.
This guide explains how points, penalties and interest work, and how to clear points.
Late submission: penalty points
Each late VAT return earns one point. When you reach your threshold, you get a £200 penalty, plus another £200 for every further late return while you’re at the threshold.
| Return frequency | Points threshold |
|---|---|
| Annual | 2 |
| Quarterly | 4 |
| Monthly | 5 |
Clearing points
Points below the threshold expire after 24 months, if you file everything due in that time. At the threshold, you reset to zero only after a period of compliance, filing all returns on time for 12 months if quarterly, and having submitted all returns due in the previous 24 months.
Late tax return penalty calculator
Self Assessment penalties.
Late payment penalties
| When tax is paid | Penalty |
|---|---|
| Within 15 days of the due date | None |
| Day 16 to 30 | 3% of tax unpaid at day 15 |
| After day 30 | 3% at day 15 plus 3% at day 30, plus 10% a year daily from day 31 |
These rates have applied since April 2025. Agreeing a Time to Pay arrangement stops further penalties building up from the date you ask.
A business owes £12,000 VAT, due 7 August, and pays on 6 October, 60 days late. The penalty is 3% at day 15 (£360) plus 3% at day 30 (£360), plus 10% a year for 30 days, about £99. Total penalties are around £819, plus late payment interest.
Fixed-fee accountancy support
Transparent monthly packages for sole traders, landlords and limited companies. Fixed fees agreed upfront, VAT included.
Get a fixed-fee quoteCall 0161 531 4179Late payment interest
Interest is charged from the day after the due date until you pay, at the Bank of England base rate plus 4%. If HMRC owes you a repayment, it pays repayment interest at base rate minus 1%, with a minimum of 0.5%.
The same rules for MTD Income Tax
From April 2026, people joining Making Tax Digital for Income Tax are under the same points system, with a threshold of four points for quarterly updates. For 2026/27, HMRC won’t give points for late quarterly updates for those joining in April 2026. See our MTD guide.
Reasonable excuse and appeals
You can appeal points and penalties if you had a reasonable excuse, such as serious illness or an HMRC system failure. Lack of funds or relying on someone else usually isn’t accepted.
- Diary every VAT deadline: one month and seven days after the period end
- Pay by Direct Debit to avoid late payments
- Ask for Time to Pay early if you can’t pay
Read HMRC’s guidance on VAT penalty points, or let our VAT team file your returns on time.
What should I do next?
In your VAT account.
Avoid late payment.
Stop penalties growing.
Frequently Asked Questions
How many VAT penalty points before a fine?
Four points for quarterly returns, five for monthly and two for annual.
How much is a VAT late submission penalty?
£200 once you reach the threshold, and £200 for each further late return.
What are the late payment penalty rates?
3% after 15 days, a further 3% after 30 days, then 10% a year daily.
Do VAT penalty points expire?
Yes, after 24 months if you are below the threshold and keep filing.
Does the points system apply to MTD Income Tax?
Yes. It applies to quarterly updates and tax returns under MTD for Income Tax.
Need help with this? Wingate Accountants offers fixed-fee online accountancy support across the UK. Call 0161 531 4179 or request a quote at wingateaccountants.co.uk.
About the Author
Stephen Reynold
I’m Stephen Reynold, an accountant at Wingate Accountants. I work with sole traders and small companies, turning tax rules into clear, practical next steps.
