What HMRC Tax Surcharges Apply to VAT?

If you file a late VAT return or make a late VAT payment, it is known as a ‘default’. When a company defaults on its VAT obligations, HMRC has a systemised process of surcharges and penalties it can use to prevent companies from making similar defaults in the future and penalise those that do.

The deadline for filing returns and paying the liabilities that arise from those returns is generally one month and seven days after the end of the accounting period. So, in practice, your quarterly VAT return for the period January to March would need to be filed and paid, with the funds cleared in HMRC’s account, by 7 April. Failure to do so and a default will be recorded. The action this triggers depends on your company’s turnover.

Turnover of £150,000 or more

If your company has a turnover of £150,000 or more then you will receive a Surcharge Liability Notice on your first default. From that point, your VAT returns and payments must be submitted and made on time for the next 12 months. Failure to do so and penalties will apply which escalate in the following way:

  • 1st default – You receive a Surcharge Liability Notice and enter the formal 12-month surcharge period;
  • 2nd default – 2 percent of the outstanding VAT is added to your bill;
  • 3rd default – 5 percent of the outstanding VAT is added to your bill;
  • 4th & 5th default – 10 percent and 15 percent respectively of the outstanding VAT is added to your bill.

Turnover of less than £150,000

If your business is turning over less than £150,000 then on your first VAT default you will receive a letter from HMRC, intended to provide guidance, informing of the late filing of your VAT return or payment of your bill. If you are late again within 12 months of that letter you will receive a Surcharge Liability Notice and the 12-month surcharge period will begin. Any further defaults will be punishable by escalating penalties.  

  • 1st default – You are sent a letter informing you of the late filing of return or payment of your bill. A further default within 12 months and the surcharge period will be triggered;
  • 2nd default – You receive a Surcharge Liability Notice and enter into the formal 12-month surcharge period;
  • 3rd default –  2 percent of the outstanding VAT is added to your bill;
  • 4th default –  5 percent of the outstanding VAT is added to your bill;
  • 5th & 6th default – 10 percent and 15 percent respectively of the outstanding VAT is added to your bill.

Paying the Outstanding VAT Amount in full

It’s worth noting that if you file a late VAT return but pay the outstanding VAT in full and on time, no surcharge will be applied. So, even if you are late filing your VAT return, you can still act to prevent a surcharge. HMRC also has the power to extend the initial 12-month surcharge period if appropriate by way of a Surcharge Liability Notice Extension.

Need help?

If you have substantial VAT arrears and you cannot pay them when HMRC want this can have serious consequences. We can usually help negotiate a settlement. For help call 08000 746 757.

Read more about HMRC Tax Problems

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