Clients sometimes call me to say they are late with their VAT return and my usual response is to say do not worry as provided you get the next 12 months returns in on time there is not an issue. But what happens if you are late again?
The first time you pay your VAT late to HMRC your record will be marked for a VAT penalty called a ‘default surcharge’, the first one doesn’t attract a monetary penalty. If you are late again within 12 months this triggers a penalty of 2% of the VAT due, and on the third, fourth, and fifth occasions the percentage increases to 5%, 10% then 15% of the VAT due.
HMRC will only demand payment from a small business if the total penalty amounts to over £400, this amounts to £20k and £8k of VAT (at 2% and 5% levels) so smaller businesses may be unaware. You will however receive a warning letter, and you should appeal against the penalty if you had a reasonable excuse for paying late, otherwise make sure you pay the next ones on time!
If you have not got the money available to pay your VAT bill, that is not a reasonable excuse, so you need to ask the HMRC business support service for time to pay before the VAT becomes payable by calling 0300 200 3835. This is not the VAT helpline, they can’t deal with VAT debt issues. If your VAT payment was delayed by circumstances outside your control, for example a computer failure at your bank, that would be a reasonable excuse. You will need to present evidence of this reason when asking HMRC to review the penalty. Around 60% of VAT penalties are overturned on review.
This article provides a summary of the VAT rules but may not wholly apply to your situation so you should seek professional advice before taking any steps based on the contents. If you would like advice in this or other areas feel free to call. Alastair Wood, AW Accounting, Gravesend, Kent – Accountants who “speak your language”