HMRC VAT Penalty Points System: Thresholds, £200 Fine, and Appeals

HMRC’s VAT penalty points system adds one point to your record for every VAT return you file late. Once your points reach the threshold set for your filing frequency, HMRC charges a £200 penalty for that late return and for every further late return until you clear your record. The system took effect on 1 January 2023, replacing the old default surcharge, and it treats a single missed deadline very differently from a repeated pattern.

When You Get a Penalty Point

Under Schedule 24 of the Finance Act 2021, a point is issued each time a VAT return misses its due date.¹ It does not matter whether the return shows tax owed, a repayment due, or no transactions at all. The trigger is the late submission itself, separate from anything to do with payment.

HMRC must send you a notice identifying the return period that caused the point and the group the point belongs to.¹ Your running total is also visible in your VAT online account, and checking it there is more reliable than waiting for the post.²

A few returns sit outside the system. Your first return after registering for VAT, your final return after cancelling registration, and any one-off return covering a non-standard period do not attract points.² Everything else does.

Thresholds by Filing Frequency

How many points you can rack up before a fine kicks in depends on how often you file:

Annual filers: 2 points
Quarterly filers: 4 points
Monthly filers: 5 points

The scale reflects opportunity. A monthly filer has twelve chances a year to miss a deadline, so the threshold sits higher; an annual filer has only one, so it sits lower.²

The £200 Fine and What Happens Next

Hit your threshold and HMRC charges a flat £200. The amount is fixed regardless of turnover, business size, or the tax due on the return that tipped you over. And it does not stop there. Every further late submission while you remain at your threshold triggers another £200. A quarterly filer who reaches four points and then misses two more deadlines would owe £600 across the three penalty-triggering returns.²

Paying the £200 does nothing to your points. It does not reduce the total and it does not stop the next fine. Filing the missing return and paying the penalty are two separate obligations; settling one does not close the other.

Clearing Points From Your Record

Points come off in one of two ways, and which route applies depends on whether you have already reached your threshold.

Automatic Expiry (Below the Threshold)

If you have not hit your threshold, each point expires on its own after about two years. Where the return deadline was not the last day of a month, the point drops off on the last day of the month 24 months later. Where the deadline was the last day of a month, it drops off on the last day of the month 25 months later.³ A single slip in an otherwise clean record clears itself, provided you stay below the threshold in the meantime.

Full Reset (At or Past the Threshold)

Once you reach the threshold, automatic expiry stops. Points only come off if you satisfy two conditions on the same day.

The first is a period of compliance. Every return must be filed on or before its deadline for a set stretch:

Annual filers: 24 months of on-time filing (2 returns)
Quarterly filers: 12 months of on-time filing (4 returns)
Monthly filers: 6 months of on-time filing (6 returns)

One late return during this window restarts the clock from scratch.³

The second is that every VAT return whose deadline fell in the previous 24 months must have been submitted, on time or late.¹ Filing on time from now on is not enough if there are still gaps behind you. Both boxes need ticking simultaneously before the total resets to zero.

Reasonable Excuse

If something genuinely outside your control stopped you from filing on time, you can ask HMRC to remove the point or cancel the £200 fine. The return still needs to be filed as soon as you are able; a long delay after the obstacle has cleared weakens the claim.⁴

HMRC recognises circumstances including:

Bereavement of a partner or close relative shortly before the deadline
Serious illness or an unexpected hospital stay
Computer or software failure while preparing the return, or an outage of HMRC’s own online services
Fire, flood, or theft that destroyed records or blocked access to premises
Genuinely unpredictable postal delays
A disability or mental health condition that directly caused the delay
Reliance on another person who was meant to submit the return and failed to

HMRC will not accept insufficient funds causing a bounced payment, finding the online system too difficult, not receiving a reminder, or making a mistake on the return itself.⁴ Where a reasonable excuse is accepted, the law treats you as having filed on time, which also protects any compliance period you are working through toward a reset.¹

Late Payment Is a Separate Charge

Points only cover late returns. Paying the VAT itself late runs on a different penalty regime, and the two stack: you can file on time and still be fined for paying late.⁵

Up to 15 days late: no penalty. This is the window to pay or contact HMRC.
16 to 30 days late: a first penalty of 2% on the VAT still outstanding at day 15.
31 or more days late: the first penalty rises to 2% of the balance at day 15 plus 2% of the balance still outstanding at day 30. A second penalty then runs daily at an annualised 4% on the unpaid amount from day 31 until the balance is settled.

HMRC also charges interest on the outstanding balance, currently 7.75% and effective from 9 January 2026.⁶ Interest runs from the day after the payment was due until HMRC receives it in full, on top of both late payment penalties. A Time to Pay arrangement agreed with HMRC’s Payment Support Service can reduce or eliminate the late payment charges, but breaking the terms lets HMRC cancel the arrangement and charge the penalties as if it had never existed.⁵

Challenging a Point or Fine

If you think a point or £200 fine was applied wrongly, start by requesting a review through your VAT online account or by writing to HMRC. You cannot skip this step and go straight to a tribunal. HMRC reconsiders the decision internally and either revises it or sends a review conclusion letter confirming it.

If the outcome still looks wrong, you can appeal to the independent First-tier Tribunal (Tax Chamber). The usual deadline is 30 days from the date of the decision or review conclusion letter. Miss it and you will need to explain the delay, with a judge deciding whether to let the appeal proceed.⁷

1
Legislation.gov.uk. Finance Act 2021 – Schedule 24
2
GOV.UK. Penalty points and penalties if you submit your VAT return late
3
GOV.UK. Remove penalty points you’ve received after submitting your VAT return late
4
GOV.UK. Disagree with a tax decision or penalty: Reasonable excuses
5
GOV.UK. How late payment penalties work if you pay VAT late
6
GOV.UK. HMRC interest rates for late and early payments
7
GOV.UK. Appeal to the tax tribunal