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Stay on top of your VAT compliance

Ryan Bevan 18 May 2016 No comments


Avoid VAT Penalties for late filings of VAT Returns


Staying on top of your UK VAT compliance obligations is important for businesses to avoid unnecessary and unwanted penalties and increased scrutiny from HMRC.

Penalties exist within the VAT system for VAT errors, late or non-submissions of VAT Returns, late payments of VAT liabilities and general non-compliance with HMRC rules. The VAT penalties issued by HMRC are usually based on a percentage of the VAT owed to HMRC levied on top of the existing amount owed (in the case where VAT is due).

Penalties for missing a VAT Return filing or VAT payment deadline

A business is in default when it either submits a VAT Return late, or it submits its VAT Return on time but the associated VAT payment is made late.

HMRC will issue a Surcharge Liability Notice (SLN) explaining what will happen if another deadline is missed during the following 12 months, this is the surcharge period. The surcharge period runs from the date of the Notice to the first anniversary of the last day of the VAT period in respect of which the business defaulted.

If a further default is made during this 12 month surcharge period the surcharge period shall reset through HMRC sending a Surcharge Liability Notice Extension (SLNE), and the 12 months’ probation period shall begin again from the most recent default period. Also a default surcharge may be payable.

The penalty levied is a percentage of the unpaid VAT at the due date. Each additional time there is another late VAT Return submission or payment, the surcharge period is extended for a further 12 months.

The surcharge percentage also increases with each late payment, in line with the table below:


UK VAT Penalties Table

Click table image to see table in full


The penalties shown in the table above are based on a known VAT liability amount, say for instance in late submissions of payment due VAT Returns.

However, in the instance where no VAT Return is submitted at all, HMRC will estimate the amount of VAT you owe and base the surcharge amount upon their estimate; this is classified as an Assessment.

Should a correct VAT Return not be submitted post-assessment, the amount of VAT may be increased and subsequently the surcharge amount.

VAT Surcharge Period

If you do not file your VAT Returns or make your VAT payments on time, your business will enter a 12-month ‘surcharge period’ starting from the date of the late submitted/paid VAT Return/VAT liability.

Once your business is in the surcharge period, it is very important not to make late filings or payments again, as if you default again during this period:

  • the surcharge period is extended for a further 12 months, and
  • you will incur additional penalties (‘surcharges’) on top of the VAT already owed to HMRC.

In order to break out of the surcharge liability period and the possible escalation of surcharge percentages, the business must submit one year’s VAT Returns and payments on time.

If your business is struggling to keep up with UK VAT Return submissions, making VAT payments or general VAT compliance and would like to find out if we can assist, please fill in the form below to talk with a VAT compliance expert.