ACCA ATX ^UK Syllabus A6. Value Added Tax - Calculate late payment interest and state the penalties that can be charged. - Notes ^{1 / 1}

You have to pay an INTEREST and a PENALTY

1. Late payment interest

   If a tax liability is paid late, then late payment interest will be charged.

2. Late payment Penalty for balancing payments

   If a balancing payment is paid late, then a penalty will be charged.

3. Penalties for incorrect returns

   If a tax liability is understated, then a penalty might be charged.

1) Late payment interest

The rate of interest is 7.75%.

If the liability is outstanding for less than a full year, then this will be apportioned accordingly. 

For example 

A corporation tax liability of £300,000 was outstanding for 4 months.

How much late payment interest will be payable assuming a rate of 7.75%?

4/12 * 7.75% * £300,000 = £7,750

2) Late payment Penalty for balancing payments

• 5% for tax unpaid 30 days after payment due date,

• further 5% if still unpaid after 6 months and

• a further 5% if still unpaid after 12 months.

3) Penalties for incorrect returns

The amount of penalty is based on the amount of tax understated.

But the actual penalty payable is linked to the taxpayer’s behaviour:

1. NO PENALTY where a taxpayer simply makes a genuine mistake.

2. UP TO 30% of the understated tax where a tax payer fails to take reasonable care.

3. UP TO 70% of the understated tax if error is deliberate.

4. UP TO  100% of the understated tax where the error is deliberate and concealed.

A penalty will be substantially reduced where the taxpayer makes disclosure, especially unprompted disclosure to HMRC.