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How do you Avoid a Default Surcharge VAT Penalty

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The VAT People - Expert Author

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12th November 2013 - vat people

In the current climate many businesses are finding themselves in a position whereby they do not have funds to pay the VAT bill at the end of the quarter. With default surcharge penalties levied at up to 15%, how can you or your client avoid a penalty?

The recent case of Olive Business Solutions Limited considered whether the taxpayer had a reasonable excuse and therefore was not liable to the default surcharge penalty and whether the amount of penalty was disproportionate.

The return was received by HMRC on the due date, 30 November 2012. Payment should have been made (electronically) by 7 December, but was made by three installments, on 11 December, 24 December and 4 January 2013. A penalty of £16,337.28 (5% of the tax) was imposed.

HMRC state that a default surcharge can often be avoided if a “time to pay” agreement is authorised provided that the taxpayer has contacted HMRC, with a view to making a time to pay agreement, in advance of the due date for payment.

In this case the Tribunal therefore concluded that as the taxpayer had not contacted HMRC prior to the due date to discuss a time to pay agreement a penalty was therefore due. The Tribunal chairman stated that it is not “disproportionate to impose the penalty prescribed by a régime which is not itself disproportionate in circumstances where the person penalised has simply failed to avail himself of the mechanism by which he could have escaped the penalty.”
The key message from this case, as with many before, is that if you or your client are struggling to meet your VAT commitments at the due date, it is imperative to contact HMRC prior to this date to agree a payment plan to avoid any default surcharge penalties.

Should you have any questions with regards to the penalty regime, please do not hesitate to contact our free helpline.


About the Author

The VAT People are leading VAT and Customs Duty consultants based in the North West of England. We work with a wide range of businesses throughout the UK as well as assisting our accountancy colleagues to unravel the thorny VAT issues for their clients. We are one of the UK's largest and most comprehensive sources of VAT and Customs advice, our consultancy team having over 140 years of experience in VAT and Customs gained in either HMRC or a Big 4 accountancy practice environment.

Call us on our VAT helpline 0800 077 4604 to discuss. All initial discussions are free with no-obligation.



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Article Published/Sorted/Amended on Scopulus 2014-01-02 11:10:24 in Tax Articles

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