VAT Penalties for Late Payment 21st May 2014

Posted in: VAT

What happens if you miss a VAT deadline such as filing your VAT return late or not paying your VAT on time?

HMRC may apply VAT penalties for late registration, or for late payment of VAT.

When either of these situations arises, a default surcharge may be imposed.

The first time a default occurs, HMRC issue a warning. The warning is in the form of a surcharge liability notice (SLN) and is effective for 12 months. A default during this 12 month period has 2 consequences:

  1. a surcharge is made, based on the percentage of the unpaid VAT; and
  2. the surcharge period is extended to 12 months from the end of the quarter of default.

The surcharge rate is increased every time you subsequently default within the 12 month period. The surcharges for late payment of VAT are summarised in the table below:

No. of defaults during surcharge period Surcharge: Turnover < £150,000 Surcharge: Turnover >= £150,000
1 0% 2%
2 2% 5%
3 5% 10%
4 10% 15%
5 or more 15% 15%

The surcharge is in addition to the unpaid VAT. HMRC will not collect a surcharge of less than £400, unless the 10% or 15% surcharge level has been reached, in which case there is a minimum charge of £30.

A surcharge will not be applied if a nil or a repayment return has been submitted late. Nor will a surcharge be applied if the VAT is paid on time but the return was submitted late.

Remember also that businesses that file and pay electronically receive a 7 day calendar extension to the normal filing dates.

The only way to reset the surcharge period is to file and pay 4 consecutive returns on time. This will cause the surcharge period to lapse and a subsequent default would be treated as a first default.

A default will be disregarded in two situations:

  • where the return and payment were submitted to HMRC in such a way that it was expected that they would arrive on time.
  • where the trader had a reasonable excuse for the delay.

HMRC have other options, such as for a trader who submits every fifth return late HMRC may impose a daily penalty.