VAT Penalty Reform Research Survey

UK HMRC Publications & Guidance

Published March 26th, 2026

Detected March 26th, 2026

Summary

HMRC has published research surveying 1,202 VAT-registered businesses on their awareness and perception of new points-based late submission penalties and revised late payment penalties. The research aims to assess the effectiveness of these reforms in driving compliance and will inform the introduction of Making Tax Digital for Income Tax.

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What changed

HMRC has released research findings from a survey of 1,202 VAT-registered businesses regarding the impact of its Penalty Reform (PR) initiative. PR, implemented from January 2023, replaced the previous system of immediate financial penalties for missed VAT submission deadlines with a points-based system, where financial penalties are issued only after a points threshold is reached. Revised penalties for late payments were also introduced. The research quantifies business awareness, understanding, perceived fairness, trust, and behavioural changes in response to these new penalty structures.

This research is primarily informational, providing insights into the effectiveness of HMRC's penalty reforms and informing the upcoming rollout of Making Tax Digital for Income Tax from April 2026. While it does not impose new obligations, businesses engaged with VAT or preparing for MTD for Income Tax should be aware of these compliance drivers. The findings build upon earlier qualitative research and offer quantitative evidence on how VAT-registered businesses are adapting to the new penalty regime.

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Research and analysis

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.

From: HM Revenue & Customs and Daniel Tomlinson MP Published 26 March 2026 Get emails about this page

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Impact of Penalty Reform on VAT Registered Businesses — Quantitative research

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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.