The Points-Based Penalty System for MTD VAT

The penalty system for VAT is ‘points-based’. You’ll receive points for each transgression, such as making VAT submissions late, or paying the bill after the deadline.

To be really thorough, you might also receive a penalty if you accidentally (or deliberately) submit a VAT return which under-states or over-claims VAT.

There’s also a 30% VAT penalty if you don’t tell HMRC about a VAT assessment which is too low within 30 days, and a £400 fine for sending a paper VAT return without permission.

It’s well worth getting to grips with the VAT penalty system to help you make sure you don’t end up with a fine. Which is not fine. Unlike that pun, which is great.

The points-based penalty system for MTD VAT

Under HMRC’s points-based system for MTD, you’ll accrue one penalty point each time you miss the VAT submission deadline will. Each penalty point is valid for two years, and you’ll receive a fine each time you reach the penalty threshold.

The VAT penalty points threshold is different depending on how often you need to make VAT submissions according to the VAT accounting scheme you register to.

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

Yes, as well as penalties for VAT-registered businesses who miss their VAT submission deadline, there are fines for those that don’t pay their bill on time. The penalty is based on how late you are paying your VAT bill.

You’ll get a first late payment penalty if your payment is 16 or more days overdue. If you get to 31 or more days overdue then the ‘first payment penalty’ increases, and you’ll get a ‘second late payment penalty’ to go with it.

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

Rather than ignoring it and hoping it goes away (it won’t), you should contact HMRC to make a ‘Time to Pay’ arrangement. This is an instalment plan which, as the name suggests, allows you to agree a repayment period. There’s no set length as to how long the repayment period will be – it depends on how much you owe, and what you can afford to pay (taking into account other spending you might need to worry about).

Make sure you have your VAT reference number handy, as well as the details of what you owe and other outgoings when you make the call.

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