What are VAT penalties?
In all cases where irregularities are identified, HMRC will consider charging financial penalties. When calculating penalties, HMRC will review the underlying behaviour leading to the irregularity (whether the irregularity was deliberate or non-deliberate).
If penalties are to be charged, it will be as a percentage of the understatement of tax, and the level of penalty will depend on whether the business came forward to make a voluntary disclosure, or whether it was prompted by contact from HMRC, and the extent to which the business can be said to have cooperated with HMRC to establish the correct position.
Historically, failure to pay VAT or submit VAT returns on time (even if they are correct) would result in default surcharges after the first late return or payment (‘the surcharge period’). The level of such default surcharges increased as proportion of the VAT outstanding in accordance with the number of times you have defaulted.
However, since 1 January 2023, the penalty regime has changed, and a new points-based system has been introduced.