It’s understandably in HMRC’s best interest that you submit your VAT Return (and any necessary payments clear their account) by your VAT payment deadline date.
Though HMRC show leniency to first-time offenders, especially if you’re turning over less than £150,000 a year, you’ll find yourself having to pay penalty charges should you continue to default on your payments in the twelve-month period following a default.
If Your Turnover is £150,000+
If you’re turning over more than £150,000 a year you’ll be placed in default if HMRC haven’t received your VAT Return, or any payments haven’t cleared their account, by your deadline date.
First-time offenders will be sent a Surcharge Liability Notice explaining what will happen if you miss another deadline during your surcharge period, which will be indicated on your letter as twelve months from the date it was sent out.
You won’t be liable to pay a surcharge this time, but should you default again during your surcharge period you’ll be due to pay a default surcharge of 2% of your unpaid VAT, unless this amounts to less than £400 (in which case, no surcharge will be due).
Your surcharge period will extend by another twelve-months each time you submit a late VAT Return or payment, with the following surcharges applying for each default:
- Second default: 2% of unpaid VAT (unless -£400),
- Third default: 5% of unpaid VAT (unless -£400),
- Fourth default: 10% of unpaid VAT (unless -£30, whereby you’ll pay £30),
- Fifth (and all subsequent) default: 15% of unpaid VAT (unless -£30, whereby you’ll pay £30).
If Your Turnover is Below £150,000
If you’re turning over less than £150,000 a year you’re found to be in default under the exact same circumstances discussed above, yet HMRC are willing to let you off an initial twelve-month surcharge period, instead sending you a letter offering help and support.
With that said, if you default again in the twelve months following your receipt of this letter you’ll be sent a Surcharge Liability Notice and begin a twelve-month surcharge period, as detailed above. If you continue to default, you’ll start having to pay surcharges one level up from those listed above (eg, your third default will require you to pay 2% of unpaid VAT, fourth default 5%, etc).
Avoiding and Appealing Against Surcharges
You can avoid paying a surcharge for submitting your VAT Return or payment late if you submit a nil return (you’re not required to pay VAT), you’re due a VAT repayment, or you submit your VAT Return late but your payment clears in time (your surcharge period will be extended, but your surcharge percentage rate won’t be increased).
You can also avoid paying surcharges if HMRC agree that you had a ‘reasonable excuse’ for submitting your return late (such as the death of an immediate loved-one). These are reviewed on a case-by-case basis.
If you wish to appeal HMRC’s decision to charge a surcharge (or the amount of the surcharge payment) you can choose to have your case reviewed by an HMRC officer who was previously uninvolved in your case, or have your case seen to by an independent tax tribunal.
Experienced VAT Return Assistance
To speak with a professional to discuss your VAT Return, or to receive help appealing against surcharges, contact us today on 020 7129 1199 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.
This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.