New VAT penalty points scheme

As a firm of accountants, we welcome the introduction of the new VAT penalty points scheme by HM Revenue and Customs (HMRC). The scheme provides a clear framework for businesses to understand their VAT obligations and the consequences of non-compliance.

From a third-party perspective, we have seen many businesses struggle with VAT compliance. We understand that it can be challenging to keep up with the complex VAT rules and regulations, especially for small businesses that may not have dedicated finance or accounting teams. The penalty points system helps to incentivise businesses to take their VAT obligations seriously and to ensure that they are submitting accurate and timely VAT returns.

One of the most significant benefits of the penalty points system is that it is fair and proportionate. It is not designed to punish businesses for genuine mistakes, but rather to encourage them to improve their compliance with VAT rules and regulations. The number of penalty points awarded depends on the severity of the error or lateness, with more significant mistakes attracting more points. Once a certain number of penalty points have been accumulated, businesses will face additional penalties, but these are also proportionate and designed to encourage compliance.

As a third-party firm of accountants, we believe that the penalty points system can benefit businesses by providing a clear incentive to improve their VAT compliance. We encourage businesses to seek professional advice if they are unsure about anything related to their VAT obligations. Our team of qualified accountants and tax advisors can provide valuable advice and support to help businesses comply with VAT rules and regulations.

In conclusion, the new VAT penalty points scheme is a positive development for businesses and third-party accountants alike. It helps to incentivise compliance with VAT rules and regulations, while also being fair and proportionate. As a third-party firm of accountants, we are committed to helping businesses understand their obligations and comply with the rules to avoid penalties and other consequences.


Error or lateness Penalty points awarded
Late submission of VAT return 1 point
Late payment of VAT due 1 point
Submission of an inaccurate VAT return 2 points
Failure to notify HMRC of VAT registration 2 points
Failure to keep adequate VAT records 2 points
Deliberate understatement of VAT 2 points
Repeated errors on VAT returns 2 points
Failure to comply with a VAT penalty or assessment 3 points

Once a business has accumulated a certain number of penalty points, additional penalties will be imposed. These penalties are calculated based on the number of points accumulated over a rolling 12-month period:

Penalty points accumulated Penalty imposed
4-6 points No penalty
7-9 points 2% of VAT due
10-11 points 5% of VAT due
12 or more points 10% of VAT due

It’s important to note that penalties can be appealed if the business believes that they have been unfairly imposed. Seeking advice from a qualified accountant or tax advisor can help businesses to understand their VAT obligations and to avoid penalties under the penalty points system.

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