A Guide to Penalties for Making Tax Digital for VAT

Under the rules for Making Tax Digital for VAT, VAT registered businesses must keep their financial records digitally and submit VAT returns using HMRC-approved software. MTD VAT penalties are a bit different to other types of tax return penalty, so in this article we explain what happens if a VAT return is late or if the rules aren’t followed correctly.

Read our VAT guides to learn more.

What is the penalty for submitting my VAT return late?

HMRC use a points-based system to work out VAT return penalties, with each overdue submission accruing one penalty point each. If you receive enough points to reach the penalty threshold, you’ll be charged a £200 penalty.

VAT penalty points have a 2-year lifetime before they expire. Although this means a late VAT submission might not result in an automatic penalty, it’s still important to comply with your VAT return deadline!

What is the points threshold for receiving a VAT submission penalty?

The points threshold varies depending on how often you’re required to make submissions (which can depend on which VAT accounting scheme you are on).

How often do you make a VAT submission?	How many points you will receive before reaching the penalty threshold
Annually	2 points
Quarterly	4 points
Monthly	5 points

Will I be fined if I’m late paying my VAT bill?

The short answer is yes, HMRC will fine taxpayers who don’t pay their VAT bill on time as well as issuing penalties for not meeting the submission deadline. The penalty amount you’ll be charged is based on how many days overdue you are paying your VAT bill.

How many days after the due date you pay your VAT bill	The penalty charge before April 2025	The penalty charge April 2025 onwards
0 – 15 days	You will not receive a penalty	You will not receive a penalty
16 – 29 days	2% of the amount outstanding	3% of the amount outstanding
30 days	The above, plus 2% of the tax outstanding at day 30	The above, plus 3% of the tax outstanding at day 30
31 days or more	The above, plus 4% of the amount owed, calculated daily until you pay the amount you owe	The above, plus 10% per annum

What if I can’t pay my VAT bill on time?

Whilst you won’t receive a penalty for the first 15 days after the payment deadline, it’s never a good idea to have a history of late payments on your account. Rather than risking non-compliance, contact HMRC’s Payment Support Service to make a ‘Time to Pay’ arrangement.

The Time to Pay scheme allows you to agree an instalment plan with HMRC, taking into account other bills and spending you need to consider each month.

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Penalties if you do not comply with MTD rules for VAT

Keeping digital VAT records and submitting your VAT return using approved software is mandatory under Making Tax Digital (MTD) VAT, so you may receive a fine from HMRC if you don’t follow the rules.

Failing to use compatible software to file your VAT return can result in a penalty of up to £400 for every return you submit
You could receive a penalty of between £5 to £15 for every day that you do not meet the requirements for keeping records digitally

You could also receive a penalty if you fail to register for VAT when your taxable turnover reaches the threshold.

Learn more about our online accounting services for VAT, contact the team for a chat on 020 3355 4047, or get an instant online quote.