Impact of Penalty Reform on VAT Registered Businesses
Research on the new points based late submission system and revised late payment penalties, surveying 1,202 VAT businesses on awareness, fairness and behaviour.
Documents
Details
Penalty Reform (PR) is HMRC’s strategic direction for Late Submission Penalties (LSPs) and Late Payment Penalties (LPPs). Under the previous system, each missed submission deadline resulted in immediate financial penalties which escalated if the return remained unsubmitted (daily, 6 and 12 month). PR replaced this from January 2023 with a points-based system for missed deadlines, with financial penalties only being issued once a points threshold is reached.
This research quantifies how the new points-based system for late submissions and revised penalties for late payments are perceived and their effectiveness in driving compliance. It surveyed 1,202 VAT-registered businesses to assess awareness, understanding, fairness, trust, and behavioural change. This research builds on earlier qualitative research with small businesses in 2024 to provide robust quantitative evidence on awareness, understanding, fairness, trust, and behavioural impacts among VAT registered businesses. Insights from this research will also help shape the forthcoming introduction of MTD for Income Tax, due to be rolled out in stages from April 2026.
PR forms part of the Making Tax Digital (MTD) initiative, which seeks to deliver whole system change to the administration of VAT and Income Tax.