New system:

The new VAT penalty system will apply to VAT periods starting on or after 1 January 2023 and will deal with late returns and late payments separately. Both legs of the system will reflect taxpayer behavior, and seek to punish persistent offenders rather than those that make occasional errors.

Every time a return is submitted late, a penalty point will be incurred. These will accumulate towards a points threshold, which will be four for quarterly VAT periods, whereupon a fixed £200 penalty will be charged.

Once the penalty is triggered, the points do not reset immediately, and further late returns will incur more £200 penalties. The points are reset after a specified period of full compliance, i.e. on-time filing and filing any outstanding returns. For quarterly VAT periods, the period of compliance is twelve months.

There are different points thresholds and periods of compliance for annual or monthly VAT returns.

In summary:

VAT periodsPenalty points thresholdPeriod of compliance
Annual224 months
Quarters412 months
Monthly56 months

The way these rules work mean that a business submitting quarterly returns coinciding with the calendar year won’t be subject to a financial penalty until February 2024. However, a business submitting monthly returns could see a charge as early as July 2023.


John submits three of his returns in 2023 late, and then submits his return for March 2024 late, reaching four penalty points and incurring a £200 penalty.

He then submits his June 2024 return late, incurring a second penalty. He would need to submit his next four returns on time to reset his points total to zero.