Can I appeal a VAT penalty?

This is a question I am asked most often when a brown envelope arrives from HMRC and the initial shock has worn off. VAT penalties feel intimidating, sometimes unfair, and often confusing, especially when the business owner believed they were doing the right thing at the time. The good news is that yes, you can appeal a VAT penalty, and in many cases appeals are successful when handled properly.

In this article I will explain how VAT penalties work in the UK, when you can appeal, how the appeals process works in practice, and what HMRC actually looks for when deciding whether to cancel or reduce a penalty. I will also share common mistakes I see, and how to put yourself in the strongest possible position. Everything help here reflects current UK VAT rules and real world experience dealing with HM Revenue & Customs, supported by guidance published on GOV.UK.

The short answer

Yes, you can appeal a VAT penalty, but success depends on:

The type of penalty

The reason the penalty was charged

Whether you have a reasonable excuse

How quickly and clearly you act

Appeals are not automatic, and simply disagreeing with HMRC is not enough. You need to understand the rules, present evidence, and communicate in the right way.

What is a VAT penalty?

A VAT penalty is a financial charge imposed by HMRC when it believes a business has failed to meet its VAT obligations.

These obligations include:

Submitting VAT returns on time

Paying VAT by the deadline

Registering for VAT when required

Keeping proper VAT records

Submitting accurate VAT returns

Penalties are separate from the VAT itself and from interest, which HMRC charges on late paid VAT regardless of penalties.

Types of VAT penalties you might face

Before appealing, it is important to know which type of penalty you are dealing with, because the appeal grounds can differ.

Late submission penalties

Under the current VAT penalty regime, late submission penalties work on a points based system.

Each late VAT return earns a penalty point, and once you reach a threshold, a financial penalty is triggered.

These penalties apply even if no VAT is due.

Late payment penalties

Late payment penalties apply when VAT is paid after the due date.

HMRC applies penalties in stages, depending on how late the payment is, with higher penalties the longer the debt remains unpaid.

Inaccuracy penalties

These apply where a VAT return is incorrect, for example:

Overstating VAT reclaimed

Understating VAT charged

Using the wrong VAT rate

Making careless or deliberate errors

The penalty level depends on behaviour, ranging from careless to deliberate and concealed.

Failure to register penalties

If a business should have registered for VAT but did not do so on time, HMRC can charge a penalty based on the VAT that should have been paid.

This is one of the most expensive VAT penalties I see in practice.

When you are allowed to appeal a VAT penalty

You can appeal a VAT penalty if:

You believe the penalty is wrong

You had a reasonable excuse

HMRC made a factual or technical error

The penalty calculation is incorrect

You generally cannot appeal simply because you do not like the outcome or because paying the penalty will be difficult.

What HMRC means by a reasonable excuse

The phrase “reasonable excuse” is central to most VAT penalty appeals.

HMRC defines a reasonable excuse as something that:

Was beyond your control

Prevented you from meeting your VAT obligation

You corrected as soon as possible afterwards

Common examples that may qualify include:

Serious illness or hospitalisation

Bereavement of a close family member

Unforeseen IT failures preventing submission

Fire, flood, or theft affecting records

Postal delays where evidence exists

Each case is judged on its own facts. HMRC looks closely at what happened, when it happened, and what steps you took.

What HMRC does not accept as a reasonable excuse

This is where many appeals fail.

HMRC is very clear that certain explanations are not reasonable excuses.

These include:

Forgetting the deadline

Being too busy

Cash flow problems

Not understanding VAT rules

Relying on someone else without checking

Waiting for funds to come in

Even though these situations are common and very human, HMRC does not generally accept them as valid reasons to cancel a penalty.

The importance of acting quickly

There are strict time limits for appealing VAT penalties.

In most cases, you must appeal within 30 days of the penalty notice date.

If you miss this window, HMRC may refuse to consider your appeal, unless you can explain the delay convincingly.

I always advise clients to act immediately, even if all the details are not yet clear.

How to appeal a VAT penalty

Appeals can usually be made online or in writing, depending on the type of penalty.

You can appeal by:

Using your VAT online account

Completing the appeal form provided with the notice

Writing directly to HMRC

Your appeal should include:

The penalty reference number

The VAT period involved

A clear explanation of why you are appealing

Evidence supporting your explanation

Clarity matters more than length. HMRC officers are reviewing large volumes of cases.

How to structure a strong VAT penalty appeal

From experience, the strongest appeals follow a simple structure.

I usually recommend covering:

What happened

Why it prevented compliance

What evidence supports this

What you did to fix the issue

What steps you have taken to prevent it happening again

This shows HMRC that the issue was exceptional, not ongoing.

Evidence that strengthens your appeal

Evidence is critical. Without it, even a genuine explanation may fail.

Helpful evidence can include:

Medical letters or hospital records

Death certificates or funeral documentation

IT provider reports or screenshots

Police reports

Insurance claims

Emails showing system failures

The more objective the evidence, the stronger the appeal.

Appealing late submission penalties

Late submission penalties are appealed slightly differently due to the points system.

You can appeal if:

The return was actually submitted on time

HMRC records are wrong

There was a reasonable excuse for the delay

If points were added incorrectly, HMRC should remove them, which may prevent future penalties.

Appealing late payment penalties

Late payment penalties can often be reduced or cancelled if:

You had a reasonable excuse

You contacted HMRC promptly

You agreed a Time to Pay arrangement

HMRC gave incorrect advice

Time to Pay agreements are particularly important. If arranged early, they can stop penalties from escalating.

Appealing inaccuracy penalties

Inaccuracy penalties depend heavily on behaviour.

HMRC looks at whether the error was:

Careless

Deliberate

Deliberate and concealed

If you can show that:

You took reasonable care

The error was genuine

You disclosed it voluntarily

Then penalties can often be reduced significantly, sometimes to zero.

What happens after you submit an appeal

Once HMRC receives your appeal, it will:

Review the information provided

Consider the evidence

Decide whether to cancel, reduce, or uphold the penalty

This process can take several weeks, sometimes longer.

HMRC may contact you for clarification, so it is important to respond promptly and consistently.

What if HMRC rejects your appeal?

If HMRC rejects your appeal, that is not always the end of the road.

You may be able to:

Request a statutory review

Appeal to the tax tribunal

Negotiate penalty reduction based on behaviour

A statutory review involves a different HMRC officer reviewing the decision independently.

Appealing to the tax tribunal

If internal HMRC processes fail, you can appeal to the First Tier Tribunal.

This is a legal process and should be approached carefully.

Tribunals consider:

The law

The facts

Whether HMRC acted reasonably

While tribunals can overturn penalties, they are time consuming and may involve costs, so professional advice is strongly recommended.

Common mistakes I see in VAT penalty appeals

These mistakes come up again and again:

Appealing without evidence

Missing appeal deadlines

Being emotional or confrontational

Admitting careless behaviour unnecessarily

Failing to explain what changed afterwards

An appeal is not the place to vent frustration. It is a formal process.

How professional advice can help

In complex cases, professional support can make a significant difference.

An adviser can:

Assess whether an appeal is realistic

Frame explanations correctly

Identify valid technical arguments

Communicate with HMRC on your behalf

Reduce penalties even where cancellation is unlikely

This is especially valuable for large penalties or repeated issues.

Preventing VAT penalties in the future

HMRC looks favourably on businesses that demonstrate improvement.

Practical steps include:

Using reminders or software alerts

Submitting VAT returns early

Keeping VAT records organised

Reviewing VAT positions regularly

Asking for advice before changes

Prevention is always cheaper than appeal.

Final thoughts on appealing VAT penalties

So, can you appeal a VAT penalty?

Yes, and in many cases you should, particularly where something genuinely went wrong and you acted responsibly. However, appeals succeed on evidence, clarity, and timing, not on frustration or fairness arguments alone.

VAT penalties are stressful, but they are not always final. Understanding your rights, presenting your case properly, and engaging with HMRC constructively can make a real difference to the outcome.