As a small business owner, it is your responsibility to make sure all your tax returns are filed accurately, and the subsequent tax payments are made on time.

Whilst it’s definitely good practice to keep VAT received separate from your main receivable account, so you have the funds set aside so you are not late in paying your quarterly VAT, we know that many small business owners, facing cashflow and financial pressures, don’t always do this.

Under financial pressure, it is common for business owners to start juggling who has to be paid urgently, often suppliers or staff, and you then fall behind with VAT payments.

The problem is often compounded by ignoring it, waiting for HMRC to chase, not communicating with HMRC and then facing increasing fines for late VAT. Ultimately, this can result in significantly reducing the chance of trading out of your situation and increasing the chance of insolvency.

All is not lost though. If you need experienced, affordable help with managing your VAT late payment situation, getting the right information and documents into shape to restore credibility and trust with HMRC and negotiating with them for you, we are an ideal choice. We’ve been doing this for many years, so please do get in contact for a no obligation, empathetic chat.

Talk to an expert

If need help understanding the best way forward for your company, use the live chat during working hours, or call us on 0800 074 6757. We’ve helped 1000’s of directors navigate difficult financial circumstances.

What Happens if you Pay HMRC Late?

Failure to pay HMRC means you will not only liable for late payment tax penalties, but you will also have to pay interest on the payment from the date it was due until it is made.

The exact penalties depend on which type of tax, but HMRC will also consider whether you’ve defaulted before. Above all they favour regular communication and transparency, rather than companies who bury their head in the sand and pretend the situation isn’t occurring.  

What is the Penalty for Late Payment of VAT?

In the case of Value Added Tax (VAT), the same penalties apply to the late filing of VAT returns and the late payment of your VAT bill.  

In the majority of cases, VAT returns must be filed quarterly, but there are also monthly and annual accounting schemes.

Your VAT returns must be filed online one month and seven days after the period end. For example, for quarter ending in March, your VAT return must be filed by 7 April and the VAT was owing for the period must be paid (in cleared funds) by the same date.

VAT Default Surcharge Period: Late Filing or Payment

If you are late filing a VAT return or making a payment to HMRC, you will enter into a 12-month probation period known as a ‘surcharge period’.

If you file any further late returns or make more late payments during this period, you will incur a penalty and the surcharge period will be reset for a further 12 months. Therefore, once you have entered a surcharge period, it will only come to an end when you file and pay 12 months’ worth of VAT returns on time.

What Interest do HMRC Charge on Late Payments?

Number of Late PaymentsTurnover below £150,000Turnover above £150,000
FirstNo PenaltyNo Penalty
SecondNo Penalty2 percent of unpaid VAT
(unless below £400)
Third2 percent of unpaid VAT
(unless below £400)
5 percent of unpaid VAT
(unless below £400)
Fourth5 percent of unpaid VAT
(unless below £400)
10 percent of unpaid VAT
Fifth10 percent of unpaid VAT15 percent of unpaid VAT
Sixth and Subsequent15 percent of unpaid VAT15 percent of unpaid VAT

Interest charges on VAT

In addition to a late payment penalty, HMRC also charges daily interest on the late payment of VAT by applying a daily rate of 2.75 percent.

HMRC charges the interest from the date the payment is due, to the date the payment is finally made. This charge will be raised when the payment has been in full.  

Can you Negotiate with HMRC?

  • HMRC are not unflexible and, with an experienced meditator on your side, it may be possible to negotiate certain terms. Part of this will depend upon:
  • where you stand with HMRC. Have you defaulted before?
  • have you kept in regular communication with HMRC?
  • the sums of money involved
  • your company’s current cash flow forecasts
  • Security – in some cases, where the tax owed exceeds a certain amount and HMRC aren’t certain you’ll be able to pay, they may ask for a Security Bond

Need advice about HMRC Tax Problems?

If you would like to talk to someone about HMRC Tax Problems and negotiating time to pay arrangements, call us on 0800 074 6757 for free, confidential advice, or use the live chat function below.

We are experts are helping directors tackling business debt, and have long experience mediating with HMRC.