VAT deadlines can be easy to overlook when a business is managing the ongoing challenges that come with keeping its operations on track.
However, missing a filing or payment date can quickly become expensive, especially considering HMRC treats late submissions and late payments separately.
Understanding how the rules work can help your business stay compliant, so you do not have to worry about HMRC penalties heading your way.
What happens if a VAT return is submitted late?
For VAT accounting periods that started on or after 1 January 2023, HMRC uses a points-based system for late VAT returns.
Each late return adds one penalty point, with a £200 penalty charged once the business reaches the threshold for its filing frequency.
The threshold is two points for annual returns, four points for quarterly returns and five points for monthly returns.
After the threshold has been reached, further late returns can lead to additional £200 penalties.
Penalty points are not permanent, but a business will usually need to submit all outstanding returns and then maintain a period of on-time compliance before its points can be reset.
What happens if VAT is paid late?
Late payment penalties are separate from late submission penalties, so a business can still face charges even if the VAT return itself was filed on time.
The longer the VAT remains unpaid, the more the penalties can build, so early action is important if your business cannot pay in full by the deadline.
If VAT is still unpaid between 16 and 30 days after the due date, you can be charged a two per cent penalty that rises to four per cent after 31 days or more.
Late payment interest of four per cent also applies from the day after the VAT is due until the outstanding amount has been paid.
How can businesses avoid VAT penalties?
The best way to avoid penalties is to make VAT compliance part of your regular financial routine.
Keeping accurate records throughout the VAT period can make it easier to submit returns on time and manage cash flow around key deadlines.
This approach should help you stay timely with your filings while ensuring you have the funds to pay any bills that come your way.
Businesses should also make sure responsibility for VAT deadlines is clear, especially where more than one person is involved in preparing, reviewing or approving returns.
There are five practical steps that can help your business maintain VAT compliance:
Set reminders ahead of both submission and payment deadlines, allowing enough time to deal with queries or missing information.
Where appropriate, consider using Direct Debit so payments are collected automatically, provided funds are available when the payment is due.
If cash flow is tight, contact HMRC as soon as possible to discuss a Time to Pay arrangement, as this may reduce or prevent further penalties.
Monitor cash flow around VAT due dates and set aside funds where possible so the liability does not come as a surprise.
Even if the full payment cannot be made, submitting the return on time can help avoid late submission penalties and show that the business is engaging with its obligations.
Our team can help you review your VAT processes by working with you to make you aware of your obligations.
This can help you to manage upcoming deadlines and deal with HMRC if payment difficulties arise.
For support with VAT compliance and avoiding late filing or payment penalties, get in touch with our team.
