REFERENCE · PENALTY REGIME
The VAT penalty regime, worked through.
The points-based late filing system and the percentage late-payment regime that replaced default surcharges from 1 January 2023. What happens when, how to avoid the multipliers, and what to do once you're in them.
Two separate regimes
Late filing and late payment are charged separately.
Filing the return late earns penalty points. Paying the bill late earns percentage penalties plus interest. They're independent , you can file on time and still pay late, or vice versa. Each has its own rules.
Both regimes apply to VAT periods starting on or after 1 January 2023. They replaced the old default surcharge system entirely; no more 2/5/10/15% bands, no more 12-month surcharge periods.
Late filing: points
One point per missed filing. £200 at the threshold.
Each VAT return filed late earns 1 penalty point. The threshold depends on your filing frequency: 4 points for quarterly filers, 5 for monthly, 2 for annual. Reach the threshold and you incur a £200 fixed penalty.
Each subsequent missed filing while at the threshold triggers another £200 penalty. The points reset to zero after a full "compliance period" of clean filing. 12 months for monthly, 24 months for quarterly, 24 months for annual. Provided every return for the prior 24 months is also filed (even if late).
Individual points expire after 24 months from the month following the missed deadline, so if you don't reach the threshold you'll see them drop off. Points and the £200 penalty are appealable on "reasonable excuse" grounds. Illness, bereavement, IT failure outside your control. A normal cashflow problem doesn't qualify.
Late payment: percentage penalties
The day-15 / day-30 / daily structure stacks fast.
| Days late | Penalty (since 1 Apr 2025) | Plus | Cumulative cost on £50k |
|---|---|---|---|
| 1–14 | No first penalty | Interest at 8% per year | ≈ £150 (interest only) |
| 15 | 3% of unpaid VAT | Interest continues | £1,500 + interest |
| 30 | + further 3% of unpaid VAT | Interest continues | £3,000 + interest |
| 31+ | Daily penalty at 10% per year | Plus interest at 8% per year | £3,000 + ~£75/day |
Rates as of 1 April 2025.
The TTP escape hatch
Get a Time to Pay agreed before day 15 and the penalties don't trigger.
HMRC treats a TTP arrangement entered before the day-15 mark as paying on time for penalty purposes. No 3% first penalty, no second penalty, no daily annualised. Provided you stick to the arrangement.
Interest still runs on the unpaid balance throughout, but the percentage penalties are paused. Default on the TTP and the penalties retroactively apply from the original due date.
This is the single biggest reason to act before day 15 if you know you can't pay. Even a 3-month TTP at the standard interest rate is cheaper than the 6% (3% + 3%) penalty hit if you let day 30 pass.
Other taxes
Self Assessment uses the same regime. CT and PAYE don't.
Self Assessment moved onto the same points and percentage system from 6 April 2024 for taxpayers in the new regime. PAYE late payment uses an older percentage default system based on number of slips per year (1% to 4%). Corporation Tax late payment is interest-only. No fixed or percentage penalty for paying late, though late filing of the CT600 carries fixed penalties.
Late filing of CT600 itself: £100 if up to 3 months late, another £100 if more than 3 months, plus 10% of the unpaid tax if more than 6 months and 20% if more than 12. These stack with the late payment interest.
Common questions
- Are penalties tax deductible?
- No. Penalties are specifically disallowed for Corporation Tax purposes (s54 CTA 2009). Like late-payment interest, the cost you see is the cost you bear in full.
- Can I appeal a penalty?
- Yes, on "reasonable excuse" grounds. The bar is high: HMRC accepts illness, bereavement of a close family member, fire or flood at premises, IT failure outside your control, and certain software issues. Cashflow difficulty alone is not a reasonable excuse. Though you can ask for a "special reduction" in exceptional circumstances.
- How do I know my points balance?
- Visible in your VAT online account under Penalties. HMRC also writes to confirm each point and to confirm the £200 penalty when you reach the threshold. Points are per VAT registration, so a group registration carries one balance for all members.
- I had old default surcharges. Do they still affect me?
- No. The old default surcharge system ended for periods starting on or after 1 January 2023. Pre-2023 surcharges that were issued are still payable, but they don't count toward the new points total. Your slate started clean on 1 January 2023.
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