During a recent project I have been deploying new VM to Azure, when trying to configure the Azure VM backup I was getting a failure at taking snapshot.

The error that showed in the reason was UserErrorRequestDisallowedByPolicy.

This was being caused by a policy that one of the Azure Admins had setup to require tags be configure on resource groups. When a initial backup is run it creates a resource group to save the restore point collection to and it is this resource group that is getting blocked by the Azure tag policy.
To view the policy details we can go to Policy > assignments

Click on the policy to view the parameter’s.

There are two option to work around this issue, either changing the policy from a Deny effect to a Modify effect, or create the resource group manually.
I will be creating a manual resource group as I am not that familiar with creating custom policy yet and this was the quicker workaround.
Below is the link to the Microsoft document on creating a manual resource group for restore collection point.
Here are the steps that I did to get around this, by manually creating the resource group that will be used for the backup.
This needs to be RG name with 1 as this starting number in my case I used TheSleepyAdmin_Backup_RG1.

In the backup policy we specify the new resource group. Go to Azure Backup center > Backup policies.

Put in the name of the resource group we create manually without the number. In my case this was TheSleepyAdmin_Backup_RG

Wait for the policy update to complete.

Now try the backup again and it should complete.

If we check the resource group we can see that the restore point collection has been created.

Any addtional backup should now also be successfully, if the resource group becomes full it will try to create a new RG so there maybe a need to create another RG in the future. I will be having a look at creating or updating the tag policy to apply a modify instead of a deny but that will be in a different post as this seems like it would be a better longer term solution.