VAT Penalties: An Overview

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VAT penalties

VAT Penalties Vary According to Circumstance

There are two types of charges HMRC can levy – Penalties and Surcharges. Today we look at each of these:

VAT Penalties

HMRC can charge you a penalties as follows in the following circumstances:

  • 100% of any VAT understated or overclaimed if you submit a return that contains an error, either accidental or deliberate;
  • 30% of a VAT assessment if HMRC sends you one that’s too low and you don’t tell them it’s wrong within 30 days;
  • £400 if you submit a paper VAT Return, unless HMRC has told you you’re exempt from submitting your return online.

VAT Interest Charges

HMRC can also charge you interest if you submit an incorrect VAT return and do not pay them the correct amount of VAT.

Interest is charged at 2.75% and if you don’t pay within 30 days, further interest is charged on the VAT due from the date of the notice. You’ll be charged interest for as long as you don’t pay, up to a maximum of 2 years.



VAT Surcharges

VAT surcharges are another type of penalty levied, in addition to the above if necessary.   HMRC will impose surcharges when:

  • HMRC don’t receive a VAT return by the VAT return deadline; or
  • full payment for the VAT due on a particular return hasn’t reached HMRC bank account by the deadline.

The surcharge penalty charged is calculated as a percentage of the VAT outstanding for the VAT quarter that is in question, although it is worth nothing that you don’t pay a surcharge if this is the first time a VAT return or VAT payment has been missed.

Here is how VAT surcharges are calculated:

Defaults within 12 months Surcharge if annual turnover is less than £150,000 Surcharge if annual turnover is £150,000 or more
2nd No surcharge 2% (no surcharge if this is less than £400)
3rd 2% (no surcharge if this is less than £400) 5% (no surcharge if this is less than £400)
4th 5% (no surcharge if this is less than £400) 10% or £30 (whichever is more)
5th 10% or £30 (whichever is more) 15% or £30 (whichever is more)
6 or more 15% or £30 (whichever is more) 15% or £30 (whichever is more)

There’s no surcharge if you submit a late VAT Return and:

  • pay your VAT in full by the due date
  • have no tax to pay
  • are due a VAT repayment
Previous articleVAT Deadlines
Next articleWhat is a VAT Assessment?

Michael is a small business accountant with a passion for helping start ups and entrepreneurs. His extensive experience in business planning, tax and advisory has benefits every single one of his clients, giving each one a competitive advantage.

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