Once you reach the penalty points threshold, your VAT points never expire on their own. They are cleared only when you have both filed every return on time for a period of compliance (12 months for quarterly filers, 6 months for monthly and 24 months for annual) and filed every return that was due in the previous 24 months. Until both conditions are met, each late return costs another £200.

How do VAT penalty points normally expire?

Each late VAT return earns one point, and a £200 penalty is charged when you reach the threshold for your filing frequency: 2 points for annual returns, 4 for quarterly and 5 for monthly. The basics are covered in VAT penalty points; this page is about getting back to zero.

Below the threshold, each point expires by itself. HMRC’s guidance gives the dates: if the missed deadline was not the last day of a month, the point expires on the last day of the month 24 months later; if the deadline was the last day of a month, it expires on the last day of the month 25 months later. The legal rule is in paragraph 7 of Schedule 24 to the Finance Act 2021, which also says individual points do not expire if, just before the expiry date, you have the maximum number of points. That is why points get stuck at the threshold.

What are the two conditions for clearing all points?

Paragraph 8 of Schedule 24 says all your points for a group of returns expire on the first day when both conditions are met:

  • Condition A. You have made every return on or before its due date for the relevant length of time, which is your period of compliance.
  • Condition B. You have made all the returns whose due date fell in the 24 months ending with the previous day, whether or not they were on time.

Meeting both conditions clears every point, whether or not you are at the threshold, so it can also be a faster route than waiting for individual points to expire. HMRC must notify you when your points expire this way.

How long is the period of compliance?

Filing frequency Period of compliance Returns to file on time
Annual 24 months 2
Quarterly 12 months 4
Monthly 6 months 6

The period starts on the first day of the month after the month in which your most recent missed deadline fell. HMRC’s examples are a missed deadline of 7 July, giving a start of 1 August, and a missed deadline of 31 March, giving a start of 1 May. Every return due within that window must be on time. One late return starts the count again from the month after the new failure.

Why must every outstanding return be filed first?

Condition B looks back 24 months and ignores whether returns were late; it only asks whether they have been made. A business can therefore file every new return on time for a full year and still keep its points, because an old return from the previous year has never been sent. The 24 months include the period of compliance itself, so the look back covers both the old and the new returns.

This catches businesses that stopped filing during a difficult period and accepted HMRC’s assessments instead. An assessment is not a return. HMRC’s guidance says the return should be sent immediately, and VAT Notice 700 adds that HMRC raises its assessments with each repeat. Filing the missing returns clears condition B and replaces the assessed figures with the real ones.

How does this work in practice?

HMRC’s own example follows a quarterly filer, Company X, which reached the 4 point threshold after missing deadlines on 7 May 2023, 7 November 2023, 7 February 2024 and 7 August 2024.

  1. The last missed deadline was 7 August 2024, so the period of compliance runs from 1 September 2024 to 31 August 2025.
  2. Company X files all four returns due in that window on time, meeting condition A.
  3. It also files the still outstanding returns that were due in February 2024 and August 2024, so every return due between 1 September 2023 and 31 August 2025 has been made, meeting condition B.
  4. Its points reset to zero on the first day both conditions are met.

Illustration only. If Company X had filed the February 2024 return but forgotten the August 2024 one, its points would stay at 4 after 31 August 2025, and its next late return would cost another £200.

Does a reasonable excuse count as filing on time?

Yes. Paragraph 8(7) of Schedule 24 says that where no point or penalty arises for a failure because you had a reasonable excuse, you are treated as having made the return on time. A successful appeal against a point therefore helps the period of compliance as well as removing the point.

What happens if you change how often you file?

HMRC adjusts both the threshold and your points when you move between annual, quarterly and monthly returns. For example, moving from quarterly to monthly adds 1 point, moving from annual to quarterly adds 2, and moving from monthly to quarterly takes 1 away. A negative result is set to zero, and these adjustments cannot be appealed. A business usually in repayment that switches to monthly returns, as described in why a VAT repayment is delayed, should also note that its period of compliance becomes 6 months of 6 returns.

Points do not pass to a buyer who takes over a business as a going concern, even if the VAT number transfers. In a VAT group, points stay with the group when members join or leave, and pass to a new representative member.

What mistakes stop points being cleared?

  • Counting the period of compliance from the wrong date. It starts on the first day of the following month, not the day after the missed deadline.
  • Leaving an old return unfiled because HMRC has already assessed it.
  • Forgetting that nil and repayment returns count. HMRC’s rules apply to them in the same way.
  • Assuming late payment is part of the points system. Paying late leads to separate late payment penalties and interest, but it does not earn points or break a period of compliance.
  • Missing a deadline in the last month. Check your due dates in VAT return and payment deadlines and in your online account.

The same points model applies to Making Tax Digital for Income Tax, with its own concessions, explained in MTD late submission penalty points.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.