The default surcharge
If a taxable person:
- submits a VAT return late, or
- submits a return on time but makes late payment of the VAT due then:
HMRC will issue a surcharge liability notice which will specify the surcharge period (normally 12 months).
If within these 12 months, you don't make another default:
You will NOT pay any surcharge.
If within these 12 months, you make another default:
1) You will have to pay a surcharge which is calculated as a % of the tax paid late and
2) The surcharge notice period will be extended for another 12 months.
|Default involving late payment of VAT in the surcharge period||Surcharge as a % of the VAT outstanding at due date|
For the first and second default, if the surcharge due is less than £400, then nothing is payable.
For the third and fourth default, there is a minimum of £30 payable, even if the surcharge does not amount to this month.
Tommy has submitted his VAT returns as follows:
|Quarter ended||Vat paid (£)||Date submitted|
VAT returns late?
What are the consequences of Tommy submitting his VAT returns late?
Surcharge period notice issued of 12 months, ending on 31/03/19.
No default surcharge levied on initial late submission.
Submitted and paid on time.
Still within the surcharge period, ending on 31/03/2019.
This is the first default within the surcharge period, therefore a default surcharge of £3,100 * 2% = £62 is levied.
This is not payable by Tommy because it is less than £400.
However, the surcharge notice period will now extend to 30/09/2019.
The surcharge of £1,300 * 5% = £65 is again less than £400, therefore this will not be payable by Tommy.
However, the surcharge notice period will now extend to 31/12/2019.
Errors on a VAT return
If a VAT return is submitted incorrectly, the following penalties and surcharges will apply.
Disclosed by the taxpayer
Errors disclosed by a taxpayer are either defined as small or large.
If an error occurs, then default interest and a standard penalty may be payable.
These depend on whether an error is defined as small or large.
Default interest is interest based on the delayed payment of the VAT liability.
A standard penalty may be payable depending upon the reason for the late submission.
The difference between a small and a large error are:
A small error is defined by being less than the de-minimus limit.
The de-minimus limit is the greater of:
1% of turnover (subject to an upper limit of £50,000)
|Consequences||Small Error||Large Error|
|Default interest payable?||No||Yes|
|How to disclose?||On the next VAT return||Separately disclose to HMRC|
|Standard penalty?||May be payable depending in reason of error||May be payable depending on reason of error|
Bebe Ltd. has made an error relating to understated output VAT of £7,000 for the quarter to 31/12/2018.
The company’s turnover for the quarter is £200,000.
How should this error be disclosed to HMRC?
The greater of:
2) 1% * £200,000 = £2,000
The error is small because it is less than the de-minimus limit.
Therefore, it can be disclosed on the next VAT return.
No interest will be payable and depending on the reason for the understatement, a standard penalty will be decided.
Disclosed by HMRC
- Default interest due regardless of size of error.
- Standard penalty.
Standard penalty is based on the reason of inaccuracy
Genuine mistake – no penalty
Careless mistake – 30% of VAT due
Deliberate mistake – 70% of VAT due
Concealment – 100% of VAT due