MSB Accounting Limited

A: A default surcharge is a penalty businesses have to pay if they submit VAT returns after the designated filing date or make payments too late.

VAT registered traders should take the following factors into account:

1. There is no penalty for a first offence but a business that submits a VAT return late or makes a late payment is issued with a surcharge liability notice that begins on the date of the notice and ends twelve months from the end of the latest period in default.

2. If further VAT returns are submitted late during this period a penalty based on a 'specified percentage' (2-15%) will apply. The penalty increases to a maximum of 15% with each subsequent default.

3. There is no scope for mitigation of the penalty and limited scope for providing a 'reasonable' reason for the delay in filing or payment:

"HMRC accept that taxpayers may have a reasonable excuse in cases involving computer breakdown, illness or loss of key personnel, unexpected cash crisis or loss of records. However, a claim of reasonable excuse will not necessarily be accepted just because it seems to fit into one of these categories. HMRC do not accept that a lack of funds is a reasonable excuse unless this is caused by some unforeseen event."

You will not suffer a surcharge under the following circumstances:
• A nil return is submitted late.
• A VAT repayment return is submitted late.
• If an agreement has been arranged in advance of the VAT due date allowing you to pay at a later date (only where the terms of the agreement are adhered to).
• The VAT due has been paid on time but the VAT return was late. This will be recorded as a default and will extend the 12-month surcharge period but will not increase the percentage rate.

Please contact us for more guidance on this.