Penalties: Value-added Tax (VAT)

The following details explain the penalties for VAT for late filing and related matters. 

As noted in our previous Tax Penalty posts, where either a return is made late or tax is paid late (first default), HMRC is empowered to serve notice that the following year is to be a surcharge period.

If any return or payment in the surcharge period is made late (second default), an automatic surcharge of 2% of the tax due is made.

For the third default, the surcharge is increased to 5%, for the fourth default to 10% and, for the fifth or subsequent default, to 15%. Each default in the surcharge period results in the period being extended. This includes late filing of returns.

For the first two defaults, surcharge assessments for amounts less than £400 are not issued. There is a parallel default surcharge regime that operates where payments on account are not made within the period where they are due.

For businesses with a turnover less than £150,000 there is an additional twelve months after the initial twelve months for which no surcharge is made.

Penalties may also be charged for not complying with various administrative requirements, such as the preservation of records (normally for six years, ten years if the VAT MOSS service is used), the supply of information or documents requested by HMRC, notifying changes in registration details etc.

Many of these have been superseded by the new powers and penalties available to HMRC for periods after 1 April 2009. Since 1 April 2010 there have been penalties for “VAT and Excise wrongdoing”. These cover various matters including:

  • Unauthorized issue of a VAT invoice
  • Misuse of red diesel
  • Handling alcohol or tobacco subject to unpaid duty.

Penalties can be levied for failure to submit (or late submission of) detailed statistical returns of sales and purchases of goods from other EU countries.

Two penalties relating to disclosure apply:

  • Businesses with supplies of £600,000 or more must disclose to HMRC the use of “listed” VAT avoidance schemes published in a statutory list. Failure to do so attracts a penalty of 15% of the tax avoided
  • Businesses with supplies exceeding £10 million a year must disclose the use of any scheme that has certain of the hallmarks of VAT avoidance. Failure to do so attracts a flat rate penalty of £5,000.

We have created several posts surrounding Tax Penalties for further reading here.

For more information, we provide a Business Consultation to ensure our clients benefits from tax planning and accounting matters.

For any assistance contact Companies999, we will be happy to help you!

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