A VAT return is late
Submit it as soon as the figures can be completed correctly. A nil or repayment return can still generate a late-submission point.
VAT problems, penalties and corrections
A problem is usually easier to contain when you act promptly.
Choose what has happened. The immediate action is more important than learning every penalty rule before you begin.
General information only - always check the position shown in the business’s VAT online account and the linked HMRC guidance.
VAT has not been paid
Pay promptly or contact HMRC about Time to Pay. Interest runs from the first overdue day, even where no late-payment penalty is yet due.
An error has been found
Do not simply overwrite the old return. The correction route depends on whether the return was already submitted, the net value and whether the error was deliberate.
First action: submit the return as soon as it is complete. Filing late and paying late are separate matters, so deal with both if VAT is also outstanding.
For VAT periods starting on or after 1 January 2023, each late return normally produces a penalty point. The financial penalty begins when the relevant points threshold is reached.
Annual returns2 pointsPenalty threshold
Quarterly returns4 pointsPenalty threshold
Monthly returns5 pointsPenalty threshold
At the threshold£200Financial penalty
Further late returns£200 eachWhile still at threshold
HMRC says the first VAT return after registration, the final return after deregistration and certain one-off non-standard returns are outside these late-submission rules. Check the detailed guidance rather than assuming an exception applies.
First action: pay what you can and contact HMRC promptly if full payment is not possible. An agreed Time to Pay arrangement can reduce or prevent further penalties, although interest can still continue.
Days 1 to 15
No late-payment penalty, but late-payment interest runs from the first overdue day.
Days 16 to 30
The first penalty is 3% of the VAT outstanding at the end of day 15.
Day 31 onwards
The first penalty adds 3% of the amount still outstanding at day 30. A second penalty is then calculated daily at an annual rate of 10% on the outstanding balance.
Late-payment interest is separate. HMRC currently calculates it at the Bank of England base rate plus 4%, from the first overdue day until payment in full.
First question: has the affected VAT return already been submitted?
No - it has not been submitted
Correct the digital records, keep a clear note explaining the change and allow the corrected figures to flow into the return.
Yes - it has already been submitted
Work out the net value of the errors across the affected returns. Keep records showing what happened, when it was found and how the amount was calculated.
Can it normally be adjusted through the next VAT return?Open the monetary tests
HMRC normally permits an adjustment through the VAT account and next return where the net error is:
- £10,000 or less; or
- between £10,000 and £50,000 and does not exceed 1% of the box 6 figure for the return period in which the error is discovered.
Record the adjustment in the VAT account and keep the supporting explanation and calculations.
When must HMRC normally be told separately?Open the formal-notification tests
Use HMRC’s separate notification route where the net errors:
- are between £10,000 and £50,000 and exceed 1% of the relevant box 6 figure;
- are more than £50,000; or
- were deliberate.
You may also choose to notify HMRC separately about a smaller error. Errors can affect interest and penalties, so obtain individual advice where the cause, amount or treatment is uncertain.
Unsure which route applies? Start with the linked HMRC guidance. You can also speak to HMRC, your existing adviser or email martin@mrsbookkeeping.co.uk freely and without obligation.