A default surcharge is a penalty levied on businesses that submit VAT returns after the nominated filing date, or make payments late. VAT registered traders should take the following factors into account:
- There is no penalty for a first offence, however a business that submits a VAT return late or makes a late payment is issued with a surcharge liability notice that begins on the date of the notice and ends twelve months from the end of the latest period in default.
- If further VAT returns are submitted late during this period a penalty based on a ‘specified percentage’ ranging from 2% to 15% will apply. The penalty increases up to a maximum of 15% with each default.
- There is also no scope for mitigation of the penalty and only a limited possibility of arguing that a reasonable excuse for the delay in filing or payment existed.
HMRC accept that taxpayers may have a reasonable excuse in cases involving computer breakdown, illness or loss of key personnel, unexpected cash crisis or loss of records. However, a claim of reasonable excuse will not necessarily be accepted just because it seems to fit into one of these categories. HMRC do not accept that a lack of funds is a reasonable excuse unless this is caused by some unforeseen event.
No surcharge will be levied under the following circumstances:
- A nil return is submitted late.
- A VAT repayment return is submitted late.
- If a time to pay agreement has been arranged in advance of the VAT due date. This is applicable only where the terms of the agreement are adhered to.
- The VAT due has been paid on time but the VAT return was late. This will be recorded as a default and will extend the 12 month surcharge period but will not increase the percentage rate.
If you have any VAT queries or concerns, please give us a call.
Lesley Malkin, Audit Partner