VAT late filing and late payment defaults surcharges

Readers are reminded that late filing or late payment of VAT returns can result in costly penalties – in VAT speak they are referred to as default surcharges.

Each time you default HMRC will send you a Surcharge Liability Notice, or Surcharge Liability Notice Extension. These will warn you that if you default in respect of an accounting period ending within a specified period (the surcharge period) you may be liable to a surcharge.

The surcharge period begins on the date of the notice and ends twelve months from the end of the latest period in default.

If you default during a surcharge period, and there is VAT outstanding for the tax period in default, HMRC will charge you a default surcharge.

If you make payments on account and default on any payment, you will be sent a Surcharge Liability Notice or Surcharge Liability Notice Extension at the end of the quarterly accounting period.

Special arrangements are in place if your taxable turnover is £150,000 or less to help when you first have difficulties paying your VAT on time. You will be sent a letter offering help and support rather than a Surcharge Liability Notice the first time you default. This is to help you sort out any short-term difficulties before formally entering the default surcharge system. If you default again within the following twelve months HMRC will issue you with a Surcharge Liability Notice.

The surcharges levied can be cumulative.

The surcharge is calculated as a percentage of the VAT that is unpaid at the due date. If you don’t send in your return HMRC will assess the amount you owe and the surcharge will be calculated as a percentage of that amount.

For the first late payment during a surcharge period the surcharge will be 2% of the VAT outstanding at the due date.

The rate of surcharge will then increase progressively to 5%, 10% and 15% for further payment defaults in a surcharge period.