How does the VAT penalty points system work?
Answered 17 March 2026
How the VAT Penalty Points System Works
The VAT penalty points system applies to VAT returns for prescribed accounting periods on or after 1 January 2023, under Schedule 24 to the Finance Act 2021. It does not yet apply to other taxes (e.g. Income Tax Self Assessment), though it may be extended in future.
HMRC Guidance / Practice
1. How Points Are Awarded
Each time a taxable person fails to submit a VAT return (including nil returns and repayment returns) on or before the due date, they may be awarded one penalty point. Returns are grouped by filing frequency (annual, quarterly, or monthly).
2. Maximum Points and the £200 Financial Penalty
The penalty points maximum depends on filing frequency:
| Submission Frequency | Penalty Points Maximum |
|---|---|
| Annual (and non-standard periods over 20 weeks) | 2 |
| Quarterly (and non-standard periods over 8–20 weeks) | 4 |
| Monthly (and non-standard periods up to 8 weeks) | 5 |
Once the maximum is reached, the taxable person becomes liable to a fixed financial penalty of £200 for that failure and each subsequent failure while they remain at the maximum — no further points are awarded. Specifically:
- Condition A: A penalty point is awarded that takes the person to the maximum.
- Condition B: A further failure occurs when the person is already at the maximum.
Note: if a taxable person has more than one failure date in a calendar month, they will not be liable to more than one financial penalty for those VAT returns.
3. Expiry of Individual Points
Individual penalty points expire after 24 months, unless the taxable person has already reached the maximum number of points for their group of returns.
4. Resetting Points to Zero
All penalty points can be reset to zero by meeting two conditions:
- Condition A (compliance period): The taxable person must submit a specified number of returns on time. For quarterly filers, this is the next 4 returns submitted on time (i.e. 12 months' worth).
- Condition B (outstanding returns): All outstanding VAT returns due in the previous 24 months must have been submitted. This is not limited to returns for periods starting on or after 1 January 2023.
Both conditions must be met for the points total to reset to zero.
5. Change of Filing Frequency
Where a person's filing frequency changes, their points total is adjusted (up or down) to reflect the new group, aiming to provide neither advantage nor disadvantage. For example, moving from quarterly to annual filing results in a −2 point adjustment; moving from quarterly to monthly results in a +1 point adjustment. Adjustment points do not carry rights of review or appeal.
6. Reasonable Excuse
A taxable person is not liable to a penalty point or financial penalty if they have a reasonable excuse for the failure and submit the return without unreasonable delay after the excuse ends.
7. VAT Groups
A VAT group's representative member has a single liability for penalty points and financial penalties for all group members. Changes to group membership (businesses joining or leaving) do not affect the group's penalty point position. A business leaving a VAT group and registering separately will start with zero penalty points.
8. Insolvency
Once a customer record is flagged for insolvency, no further penalty points are awarded and no further financial penalties are assessed for periods included in the insolvency. Any points or penalties awarded after the relevant date will be cancelled.
9. Notification
HMRC must notify the taxable person when a penalty point is awarded or a financial penalty is assessed.
10. Reviews and Appeals
A taxable person can request a review or appeal to a Tribunal in response to the awarding of a penalty point or assessment of a financial penalty.
Citation sources
All VAT registered taxable persons are required by law to submit their VAT returns by the due date for the relevant accounting period. For VAT, the returns are those required under Regulations 50 and 25(1) of the VAT Regulations 1995 SI 1995/2518. The late submission penalties apply to VAT returns for a prescribed accounting period on/after 1 January 2023. The late submission penalty regime is a points-based system which means that when a taxable person fails to submit a return, a nil return or
NB: “These rules currently only apply to VAT for VAT periods starting on or after 1 January 2023. These rules will come into force for other tax regimes at a future date. You must check the date from which these rules apply for the tax or duty you are dealing with” The late submission penalty currently applies to VAT only although more taxes, for example Income Tax Self-Assessment (ITSA), will be added over time. The returns which fall under the penalty regime are described by their ‘item’ numbe
NB: “These rules currently only apply to VAT for VAT periods starting on or after 1 January 2023. These rules will come into force for other tax regimes at a future date. You must check the date from which these rules apply for the tax or duty you are dealing with” When a taxable person has reached the maximum number of penalty points for a group of returns, they incur a financial penalty of £200. All subsequent failures to submit a return on time will trigger another financial penalty of £200 i
’s filing obligation frequency changes, there is a mechanism to adjust their points totals and reset compliance periods in a way which aims to provide neither advantage nor disadvantage to them, see CH192220. A taxable person is not liable to a penalty point or financial penalty if they have a reasonable excuse for the failure and they submit the return without unreasonable delay after the period covered by the reasonable excuse ends – see CH192370 and HMRC guidance at CH160000. A taxable person
Condition B is met on the day when all outstanding VAT returns due in the previous 24 months have been submitted. “All outstanding VAT returns” is not limited to returns for VAT periods starting on or after 1 January 2023. Note – Where the taxable person has moved between groups of returns, see CH192220, Condition B also refers to outstanding VAT returns belonging to the old group of returns. For example, A taxable person has been awarded a penalty point for each of the four occasions when they
NB: “These rules currently only apply to VAT for VAT periods starting on or after 1 January 2023. These rules will come into force for other tax regimes at a future date. You must check the date from which these rules apply for the tax or duty you are dealing with” Where the frequency of a taxable person’s submission obligations change so that they fit within a different group of returns for the same business or businesses, there are special rules which determine the penalty points the taxable p
Once a customer record has been flagged to show that a person is going through an insolvency process, no further late submission penalty points would be awarded, and no further financial penalties would be assessed in relation to periods included in the insolvency. Any penalty points or financial penalties which had been awarded/assessed after the relevant date will be cancelled. The relevant date is the date up to which claims by creditors against the insolvent entity are calculated see the Ins
new frequency penalty points maximum. The adjustment penalty points added as a result of the change in group do not carry rights of review or appeal. In addition to the change in penalty points total, the penalty points maximum will change as shown below. Previous submission frequency Previous penalty points maximum New submission frequency New penalty points maximum Annual and non-standard periods over 20 weeks 2 Quarterly etc. 4 Annual and non-standard periods over 20 weeks 2 Monthly etc. 5 Qu
Under section 43 VATA 1994, VAT registration is made in the name of the representative member. The representative member is therefore the taxable person and is responsible for submitting the returns on behalf of the group. A VAT group’s representative member has a single liability for the purpose of penalty points, compliance periods and financial penalties for all members of the group. The penalty point and financial penalty position for the VAT group is unaffected by: Changes to the businesses