What is the penalty for late submission of VAT returns?

The penalty for late submission of VAT returns is indeed based on a percentage of the unpaid VAT amount. This approach reflects the principle that the penalty is proportional to the severity of the infraction; the greater the amount of unpaid VAT, the higher the penalty incurred. The percentage-based penalty structure accounts for the fact that different businesses may have vastly different amounts of VAT liability and encourages timely compliance.

In contrast, assessing penalties through a fixed fee per day of delay does not take into account the specific circumstances of the business or the amount of VAT owed. Suspension of trading rights is a much more severe outcome and is not a common administrative penalty for late VAT submissions. Lastly, while HMRC may issue warnings for non-compliance, this is typically a precursor to more formal penalties rather than an actual penalty itself for late returns. The percentage of unpaid VAT, therefore, serves as an effective deterrent, promoting timely submission while scaling the penalty to the level of tax owed.