HMRC has introduced a significant overhaul to the VAT penalty system, moving to a points-based model designed to be fairer to those who make occasional mistakes while cracking down on repeat offenders. If you're a VAT-registered business, understanding these changes is crucial to avoiding unnecessary fines in 2025.
The New Points-Based System
Under the new rules, you receive a penalty point for each late submission. Once you reach a certain threshold of points, a financial penalty of £200 is charged for that failure and every subsequent failure.
Penalty Thresholds
- Monthly returns: 5 points
- Quarterly returns: 4 points
- Annual returns: 2 points
Points expire after a period of compliance, meaning if you submit on time for a set period, your slate is wiped clean. This is a welcome change from the old default surcharge system, which could be draconian for minor delays.
Late Payment Penalties
Separate from late submission penalties, late payment penalties have also changed. The sooner you pay, the lower the penalty rate. Interest is now charged from the first day a payment is overdue.
Need help with your VAT returns? Our team ensures timely, accurate submissions every time. Contact us to discuss our VAT services.
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