If you send in your VAT return or payment late you can be liable to a penalty of up to 15%. Can you do anything about it?
One free go – The penalty system works like this, if you send in a late return you receive a surcharge liability warning notice – this is basically a warning letter. If you have another late return within 12 months you get a penalty of 2% of the due amount, another late return one within 12 months of the previous one – 5% penalty, then 10% and finally 15%.
If you get your returns in on time for 12 months you go back to the start with a “clean record”. In effect you get a free go with your first late return and no penalty.
Was it late – You can only submit your returns to the processing unit in Southend. The local VAT offices will no longer accept VAT returns. According to the VATman the return and payment has to be received by them by the last day of the month following the end of the VAT period (or that specified on the VAT return if you use non-standard VAT periods).
If you post it first class it should be two days before the due date for the return. If the due date is a Sunday or a bank holiday the VATman should not issue a penalty providing he has the return by the next working day.
Were you warned? – The VATman should send you a warning letter (default surcharge liability notice) for your first and subsequent late returns. If he fails to do so correctly any penalty will be void.
What is an excuse? – If you have what is called a “reasonable excuse” you can avoid a penalty, but what is a reasonable excuse?
The legislation specifically excludes reliance on others and a shortage of funds from being a reasonable excuse, but the Tribunals have found the following to reasonable:
- No money because your main customer (in this case accounting for 80% of turnover) has not paid you – having no money was not the excuse, it was the reason for having no money that was accepted (Steptoe STC 757 CA)
- The computer broke and ate my records (J & V Printing Services No 6136).
- Damaged lost or stolen records are reasonable excuses.
- The serious illness of a key employee at the time of completing the VAT return (Fitz Bender Metals No 5426) – pregnancy or holidays are not an excuse as you should be able to plan around it in advance!
Sometimes you can negotiate a lower penalty with the VATman so do not be afraid to haggle!
Electronic VAT returns and electronic payments – The VATman will now accept electronic VAT returns but payment also has to be made electronically. The good news is that you get an extra 7 days to submit the return and payment. You should get a receipt from the VATman which you should print off and keep as evidence.
Sometimes the system gets overloaded (at the quarter ends) and does not send a receipt. Our sources in HMRC say that providing they have it on file they can tell when it was received so you should not get a penalty.
Talk to the VATman – If you think that you will not be able to pay your return then let the VATman know in advance and agree a time to pay the arrangement with him.
Tip – If you can pay some, but not all of the return, then send in what you can on time with the return. This is because the penalty is only calculated on the outstanding amount. In other words it is not calculated on the full liability of the return.
VATman takes tough line – In the last couple of years we have seen the VATman starting to use his powers to require a security from businesses that are persistently late with their returns. In many cases this can force a business into administration.