VAT and Making Tax Digital

VAT Penalties

New VAT Penalty System

The new system requires a change in strategy to reduce penalties

The vast majority of clubs submit and pay their VAT on time but there may be occasions where a return is not submitted on time or a payment is late in which case the club may receive a penalty surcharge which can be up to 15% of the VAT due.  A new penalty system took effect in January 2023, the system will still penalise clubs that submit late returns and payments but it is designed to penalise persistent offenders rather than those who make occasional mistakes.

Two completely different penalty systems have been introduced:

  1. One deals with late returns, and
  2. The other deals with tax not being fully paid by the due date.


The Regime for late returns will be based on a points-accumulation system: clubs will get one point for each late return they submit and then a £200 penalty will be issued by HMRC when the business reaches its points threshold. The threshold depends on the frequency that returns are submitted, for quarterly returns the threshold is four.

Escaping the points regime

A club submitting quarterly returns will get a £200 penalty once it has accumulated four points. Each subsequent late return will incur a further penalty of £200. However, it is possible to wipe the slate clean and return to zero points as long as two conditions are fulfilled:

  • All returns for the previous 24 months must have been submitted; and
  • The club must have submitted all returns on time for 12 months after reaching the relevant points threshold.

Example 1 – late returns

The club submitted all of the 2023 quarterly returns late, so incurred £200 penalty for the December period when they reached the four points threshold. They must submit the next four returns on time, including the December 2024 return, otherwise each late return will incur a further £200 penalty. If they maintain a clean slate until the December 2024 return, they will return to zero points.


The new system will not charge a penalty for any tax paid (or payment plan agreed) in the first 15 days after the due date. For tax paid between days 16 and 30, there will be a 2% penalty on the VAT outstanding at day 15. For tax unpaid by day 30, a 2% penalty applies to the amount owed at day 15 and a further 2% is charged on the amount still owed at day 30. Payments made or payment plans agreed after 30 days will be subject to a further penalty based on an annualised rate of 4%. As a special first-year concession until 31st December 2023, a late payment penalty will not be issued by HMRC if all tax owed is fully paid by day 30 after the due payment date.

There is also a separate additional interest charge for any tax paid late; the clock starts ticking from day one and interest is calculated according to the Bank of England base rate plus 2.5%.


Example 2 – late payment

A club submitted their VAT return for March 2023 on the 30th of April 2023, before the filing deadline but did not pay the tax bill of £10,000 until the 7th of August 2023 (i.e., some three months late). They will be subject to a 2% penalty on the tax still owing on day 30 after the due payment date and an annualised penalty of 4% for the next two months. Total penalty = (£10,000 x (2% + 2%)) + (£10,000 x 4% x two months/12months) = £467.  As well as the penalty of £467 they will incur an extra charge for late payment interest.



  • Submit returns on time even if they cannot pay the tax owed by the due date; and
  • Set up Direct debit – it makes sense to pay all VAT returns by direct debit.
  • Make part payments – penalties are charged according to unpaid tax after days 15 and 30.
  • If the club continues to have a cash flow problem make a time to pay arrangement with the Debt Management Unit this will help reduce penalties.