Reviewed by: Alan Bradstock on 13 August 2018

How are HMRC Tax Surcharges Calculated?

Tax surcharges can be incurred if you fail to complete the necessary tax returns on time or do not make tax payments when they become due. It is your responsibility, as a business taxpayer, to make sure you fulfil your tax obligations as you will not always be asked to complete a tax return or reminded when the payment is due.

Common causes of HMRC tax surcharges include:

  • Failing to register a new business;
  • Failing to register for VAT when your turnover reaches the VAT registration threshold;
  • Failing to keep adequate records;
  • Deliberate fraud or tax evasion.

How are HMRC surcharges calculated?

HMRC surcharges can be applied to every type of tax a business has to pay. That includes VAT, PAYE/National Insurance contributions (NICs), corporation tax and self-assessment income tax. Interest is also charged on the outstanding amount and the surcharge. The surcharge for each tax is calculated in the following way:

  • VAT – Late filing of VAT returns or the late payment of a VAT bill can lead to a Surcharge Liability Notice. From that point on, your VAT returns and payments must be submitted and made on time for the next 12 months. The more times you default during the surcharge period, the greater the surcharge you receive will be. The surcharges are calculated as a percentage of the outstanding VAT amount due.
  • PAYE/NICs – A similar system is in operation for PAYE liabilities, whereby the late payment surcharge percentage increases with every additional late payment made in the tax year. If you still haven’t made a monthly or quarterly payment in full after 6 months, you will receive an additional surcharge of 5 percent of the total amount unpaid. A further surcharge of 5 percent will be charged if you have not paid after 12 months.
  • Corporation tax – The late filing of corporation tax leads to an initial penalty of £100 and this can significantly increase after 3 months. There are also late payment surcharges which can be applied that start from 5 percent of the outstanding amount once the payment is more than 30 days overdue.   
  • Self-assessment income tax – Company directors must submit a self-assessment tax return every year. There is a mandatory surcharge of £100 for missing the submission deadline which can increase significantly if no return has been filed after 3 months. There are also late payment surcharges that start from 5 percent for payments that are 30 days overdue.  

Other tax surcharges that can apply

As well as late filing and payment surcharges, there are also a number of tax surcharges that can be issued for inaccuracies in your returns, failing to notify HMRC that you are liable to pay a particular tax, or for wrongdoing relating to VAT invoices. These surcharges can be extremely serious and escalate on a sliding scale. They include:

  • Up to 30 percent of the potential tax loss if you have been careless or failed to file a return;
  • Up to 70 percent of the potential tax loss if the error is deliberate;
  • Up to 100 percent of the potential tax loss if an error is deliberate and you try to conceal it;
  • More serious cases of tax fraud or tax evasion can lead to criminal prosecution.  

Unpaid tax and surcharges you cannot Pay?

If you have substantial taxes or surcharges you cannot pay and you need help arranging a settlement call 08000 746 757.

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