How do VAT penalty points work for late returns under Making Tax Digital?

Good question, and sensible to get to grips with it now — these rules apply to every MTD VAT return (MTD has been mandatory for all VAT-registered businesses since April 2022).

Since 1 January 2023, late VAT returns (including nil returns) run on a penalty-points system, replacing the old default surcharge. Each late return earns you 1 penalty point. There is no fine at first, but once you hit your threshold HMRC charges a £200 penalty, and a further £200 for every additional late return while you stay at that level.

The threshold depends on your filing frequency: 2 points for annual returns, 4 for quarterly returns (which is you), and 5 for monthly. So as a quarterly filer, four late returns triggers the £200 fine.

Points don't hang around forever. Individual points expire automatically (around two years after the missed deadline), and you can clear them all by completing a "period of compliance" — for quarterly filers that's 12 months of on-time filing — plus submitting any outstanding returns from the previous 24 months.

Practical steps: check your points in your VAT online account, submit through MTD-compatible software a couple of days before the deadline (normally the 7th of the second month after quarter-end), and pay on time too — late payment has its own separate penalty regime.