VAT – Over 500,000 taxpayers fined for late VAT payments

VAT – Over 500,000 taxpayers fined for late VAT payments

For context there are approximately 2.3m entities registered for VAT in the UK. Therefore, the high level of VAT fines means the equivalent of 25% of registered VAT companies and sole traders have been fined by HMRC for late payments.

A total of 582,000 fines were issued for late payment in 2024-25, an increase from 569,000 the previous year. This was equivalent to £302m in late payment penalties last year, up 2.7% from £294m in 2023-24.

But this is a very small percentage of the total unpaid VAT, which made up 5% of the total tax gap. The latest estimate of the tax gap, published by HMRC in March 2026, showed unpaid VAT had increased by 0.3%, adding a further £500m to the eye-watering £11.9bn VAT gap.

HMRC is ramping up investment to improve debt management and recovery capabilities, with a current spend of £629m over the current parliament!

Businesses cannot ‘afford to dither’ over their VAT debts as ‘HMRC will be much tougher with businesses that hide their head in the sand and ignore their overdue tax bills.’ one spokesperson from HMRC commented.

Businesses unable to pay their VAT bill can try to negotiate an HMRC ‘time to pay’ (TTP) arrangement in order to give them breathing space. 

‘If you’re a struggling business, the first thing you need to do is make sure your returns are filed on time and that you have requested a TTP from HMRC, as it can be the difference between survival and failure’, if you would like some assistance with this – please talk to us here today at Kennedys Accounting.