Episode 1 – VAT Penalties: How to Avoid the £200 HMRC Trap

 

Since 1 January 2023, HMRC replaced the old VAT surcharge scheme with a points-based penalty system for VAT returns. Every late submission — even a nil or repayment return — earns you a penalty point. Once you hit the threshold (4 points for quarterly filers; 5 for monthly; 2 for annual), a £200 fine is triggered. Each further late return while at the threshold draws another £200. GOV.UK+1

This means what was once a mild compliance slip can now carry hefty, recurring fines — a serious risk especially for small businesses and freelancers.

What businesses often misunderstand

Many assume that only outstanding VAT payments — not nil or repayment returns — carry penalty risk. That’s no longer the case. HMRC treats all returns equally under the new system. There’s no grace period: the penalty is automatic.

Equally, firms who outsource VAT or use manual bookkeeping and spreadsheets may miss deadlines — increasing their exposure.

How to protect yourself with good bookkeeping

• Use HMRC-approved, MTD-compliant software or bookkeeping services with automated reminders.

• Record transactions and reconcile your accounts regularly to avoid scrambling at quarter-end.

• Even if you expect a repayment or you can’t pay VAT yet — file the return on time. Payment can follow later, but missed returns will hit your compliance record.

A disciplined system reduces mistakes, avoids fines, and keeps HMRC at bay — especially valuable if your business experiences seasonal cash flow or fluctuating income.

We offer bookkeeping packages from £129 per month with two months free on annual subscriptions, including bank reconciliation, VAT, PAYE and monthly reports for complete financial clarity. Need help? Email support@bookkeepingpackages.co.uk or visit our site at www.bookkeepingpackages.co.uk.