Online sellers: the fourth late VAT return costs £200

A VAT-registered online seller on quarterly returns can file three returns late without paying a penny in late filing penalties. The fourth brings a £200 penalty, and so does every late return after it until the record is cleared. Returns that show a refund due, or nothing at all, earn points in exactly the same way.

That last part is easy to miss. A seller who has just paid import VAT on a large stock order is owed money by HMRC, sees no hurry, and files the repayment return a fortnight late. HMRC still gives it a point.

How the points work

The deadline for a VAT return is usually one calendar month and seven days after the end of the period, so 7 November for a quarter ending 30 September. Under HMRC's late submission rules, each late return earns one point until you reach the threshold for how often you file:

• annual returns: 2 points;

• quarterly returns: 4 points;

• monthly returns: 5 points.

Reaching the threshold brings a £200 penalty. While you sit at the threshold, every further late return brings another £200, even if the ones in between were on time.

A few returns are left out: the first return after you register, the final return after you cancel your registration, and one-off returns covering an unusual period. Paying late is a separate matter, with its own penalties and interest. This is only about sending the return.

Points expire, but not at the threshold

Below the threshold, each point expires on its own after about two years. For a return due on the 7th of a month, the point lasts until the end of the month 24 months later.

At the threshold, points stop expiring. HMRC's guide to removing penalty points says you then need two things before the slate is wiped:

• a period of compliance, which for quarterly filers is 12 months of returns all sent on time;

• every return due in the previous 24 months sent in, including any you have still not filed.

The 12 months can only start on the first day of the month after the day following your last missed deadline. One more late return restarts the clock.

Two years of a busy shop

Illustration, not a real business. Sana sells home fragrance on Etsy and Amazon from Harrow and files VAT quarterly, with deadlines on 7 February, May, August and November.

• August 2026: late. One point.

• February 2027: a repayment return after a big stock import, late. Two points.

• May 2027: late. Three points.

• November 2027: late. Four points and a £200 penalty.

• February 2028: late again. Another £200.

Sana has paid £400 in penalties, and one of her five late returns was a repayment return on which HMRC owed her money. To clear the four points she now needs every return from March 2028 to the end of February 2029 on time, with nothing outstanding from the previous 24 months. A single late return in that run sends her back to the start, with another £200.

Keeping the record clean

• Treat repayment and nil returns as urgent. They earn points like any other.

• Check your penalty points in your VAT online account, where HMRC shows them.

• If you missed a deadline for a reason outside your control, appeal the point. HMRC can cancel a point or penalty where there is a reasonable excuse.

• If you are thinking of switching to annual returns, remember the threshold drops to 2 points, and HMRC adjusts the points you already hold.

Our VAT service tracks every deadline and files from your accounting software. Before your next deadline, log in to your VAT account and check how many points you already hold. It takes two minutes, and it tells you how much room you have left.

About the author

Harvey Dhillon is Founder and CEO of Zmartly, an accountancy firm for ecommerce sellers. He grew up in West London and began his career in finance at Barclays, in investment banking and wealth management, before going full-time on Zmartly in 2020.

Featured photo by Edge Training on Pexels.