Quick answer: the cheapest accountant isn't always the cheapest choice. Late VAT returns can cost £200 each once you reach HMRC's penalty threshold, late payroll filings cost from £100 a month, and poor service leaves you not understanding your own finances. Paying a little more for a reliable service is often the better value.
Most of us are happy to pay a bit more for things we value, whether that's organic food, a comfier car or a hotel with a better night's sleep. We accept that quality costs a little more, because we can see what we're getting for it.
Accountancy is no different, but the difference is harder to see until something goes wrong.
A real example: £800 in VAT penalties
A business owner came to us recently after a run of problems with their bookkeeping. When we looked at their VAT account, every VAT return had been filed late, and the business had built up £800 in late submission penalties. Its penalty points were at the maximum, so every further late return would add another £200, and interest had been building up on the late VAT too.
The business owner hadn't realised. The penalties had built up quietly, one late return at a time, and nobody had explained what was happening or how to stop it.
That £800 would have paid for a good part of a year's bookkeeping. And it was completely avoidable.
How VAT penalties add up
Since January 2023, HMRC uses a points system for late VAT returns. Each late return earns 1 penalty point, including nil returns. Once you reach the threshold for how often you file, you pay a £200 penalty, and another £200 for every late return after that.
| How often you file | Points before a £200 penalty |
|---|---|
| Annually | 2 |
| Quarterly | 4 |
| Monthly | 5 |
For a business filing quarterly, the 4th late return brings the first £200, and each late return after that adds another £200. £800 means at least 7 late returns, nearly two years of missed deadlines.
Paying late costs extra too:
- nothing for the first 15 days
- then 3% of the VAT still owed at day 15
- another 3% of what's still owed at day 30
- after that, a penalty building up at 10% a year
- plus interest on the late VAT from the day after it was due, currently around 7.75% a year
Points don't simply disappear. Below the threshold, each point expires after 2 years. Once you're at the threshold, the points stay until you've filed every return on time for a full period (12 months for quarterly filers) and sent in every return due in the last 24 months. Until then, every late return costs another £200.
Payroll: late filings and missing payslips
Payroll has its own deadlines, and a service that cuts corners here can cost you money and your staff's trust.
A business owner we spoke to recently told us their payslips arrived late, or sometimes not at all. They also found themselves chasing their accountant for information, when it should have been the other way round. A good payroll service sends payslips on time every payday and chases you for what it needs.
Late payroll reports to HMRC. Every time you pay staff, a Full Payment Submission (FPS) must reach HMRC on or before payday. File late and, after the first late filing of the tax year, HMRC can charge a penalty every month it happens:
| Number of employees | Penalty per late month |
|---|---|
| 1 to 9 | £100 |
| 10 to 49 | £200 |
| 50 to 249 | £300 |
| 250 or more | £400 |
Even a one-person company paying the director a salary through payroll can be caught. A year of late filings could mean over £1,000 in penalties.
Paying PAYE late brings its own penalties, of up to 4% of the amount paid late, depending on how many times it happens in the year, plus interest.
Payslips aren't optional. Employees and workers have a legal right to a payslip on or before payday. It must show their pay before and after deductions, the deductions themselves, and the hours worked if their pay depends on them. Payslips that don't arrive, or arrive weeks late, leave staff unable to check they've been paid correctly, and can lead to employment tribunal claims.
Other signs of a payroll service cutting corners include pension auto-enrolment not being done, wrong tax codes going unnoticed, and P60s arriving late or not at all.
Service is what you're really paying for
Penalties are the cost you can put a number on. The bigger cost is often what a low-priced service leaves out.
A good accountant should:
- Meet every deadline, and tell you about them in good time rather than at the last minute. They should chase you for what they need, not leave you chasing them
- Explain your figures in plain English, so you understand what you owe and why
- Make time for you: a call before your year end, a quick answer to a question, a chat before a big decision
- Spot problems early, such as an overdrawn director's loan account, a VAT threshold approaching or penalty points building up
- Look for savings, from the right salary and dividend mix to reliefs you didn't know about
- Keep you informed when the rules change, such as Making Tax Digital or new tipping rules
If you only hear from your accountant when a bill arrives, or you don't understand the accounts you've signed, it's worth asking what you're paying for.
Cheap and good value aren't the same thing. A fee that's a little higher, but includes reminders, explanations and someone who answers the phone, often costs less overall once you count the penalties, the missed savings and your own time.
How to check if you have penalties
Many business owners don't know they have penalty points until a bill arrives.
- Sign in to your HMRC business tax account online.
- Open your VAT account and look for penalties and appeals. It shows your points, any £200 penalties and what's still owed.
- For payroll, check your PAYE account for late filing penalties and any amounts outstanding.
- Read any letters from HMRC. Penalty notices are posted or appear in your online account.
Can you appeal? Yes, if you had a reasonable excuse, such as serious illness or an HMRC system failure, usually within 30 days of the penalty notice. Relying on someone else, such as your accountant, isn't usually accepted as an excuse on its own. That's why choosing the right one matters.
A quick checklist
- Do you know your VAT and payroll deadlines, or does someone remind you in good time?
- Have you checked your HMRC account for penalty points in the last year?
- Do your staff get a payslip on or before every payday?
- Do you understand your last set of accounts and tax bill?
- When did your accountant last suggest a way to save tax?
If you answered "no" or "not sure" to any of these, it may be time for a review.
Frequently asked questions
How much is the penalty for a late VAT return?
Each late return earns a penalty point. Once you reach the threshold (4 points if you file quarterly), HMRC charges £200, then another £200 for each late return after that.
Do VAT penalty points expire?
Below the threshold, each point expires after 2 years. At the threshold, points only reset once you've filed on time for a full period (12 months for quarterly filers) and sent in all returns due in the last 24 months.
What is the penalty for late payroll filing?
After the first late filing in a tax year, HMRC can charge £100 a month for employers with 1 to 9 employees, rising to £400 a month for 250 or more.
Do employees have to get a payslip?
Yes. Employees and workers have a legal right to a payslip on or before payday, showing their pay before and after deductions, and their hours if their pay depends on them.
Can I appeal a VAT or payroll penalty?
Yes, if you had a reasonable excuse, usually within 30 days of the penalty notice. Relying on an accountant or bookkeeper isn't normally enough on its own.
In short
- Late VAT returns cost £200 each once you reach the threshold, and payroll filing penalties start at £100 a month.
- Check your HMRC account for points you may not know about.
- A good accountant's real value is reliability, clear explanations and time spent with you.
Worried about penalties, or want a second opinion on your VAT, payroll or accounts? Meridian Accountants, Chartered Accountants based in Southampton, works with businesses across Southampton, Romsey, Winchester, the New Forest, Totton and surrounding areas. We'll review where you stand, help you deal with any penalties and keep you on track. See our bookkeeping, payroll and VAT service, or get in touch to book a call.
This article is general information based on HMRC rules as at October 2026. It is not advice on your specific circumstances. Please speak to an accountant before acting.