VAT – Understanding the default surcharge

Tax Comments Off on VAT – Understanding the default surcharge

A default surcharge is a penalty levied on businesses that submit VAT returns after the nominated filing date, or make payments late. VAT registered traders should take the following factors into account:

  1. There is no penalty for a first offence, however a business that submits a VAT return late or makes a late payment is issued with a surcharge liability notice that begins on the date of the notice and ends twelve months from the end of the latest period in default.
  2. If further VAT returns are submitted late during this period a penalty based on a ‘specified percentage’ ranging from 2% to 15% will apply. The penalty increases up to a maximum of 15% with each default.
  3. There is also no scope for mitigation of the penalty and only a limited possibility of arguing that a reasonable excuse for the delay in filing or payment existed.

HMRC accept that taxpayers may have a reasonable excuse in cases involving computer breakdown, illness or loss of key personnel, unexpected cash crisis or loss of records. However, a claim of reasonable excuse will not necessarily be accepted just because it seems to fit into one of these categories. HMRC do not accept that a lack of funds is a reasonable excuse unless this is caused by some unforeseen event.

No surcharge will be levied under the following circumstances:

  • A nil return is submitted late.
  • A VAT repayment return is submitted late.
  • If a time to pay agreement has been arranged in advance of the VAT due date. This is applicable only where the terms of the agreement are adhered to.
  • The VAT due has been paid on time but the VAT return was late. This will be recorded as a default and will extend the 12 month surcharge period but will not increase the percentage rate.

If you have any VAT queries or concerns, please give us a call.

Lesley Malkin, Audit Partner