Don't default
Default surcharge, the penalty for paying VAT late, is really expensive – up to 15% of the money due for being only a day late. That’s an annual rate of interest that would make a payday lender blush. But if you’re late, you will need a 'reasonable excuse' to get out of the penalty.
There are many, many cases about surcharge. Some people persuade the Tribunal that they should be let off, but they are the minority. There are some useful lessons to be learned from the people who lose. Most importantly, if you get a surcharge liability notice, you need to find out why and to put things right before it starts to cost money. The first default won’t be charged – the second late payment is penalised at 2%, then at 5%, then at 10%, then at 15%. The 2% and 5% penalties are only collected if the amount is over £400, so a small trader may only be asked for money on the fourth default – by which time they may appear to be a serial late payer.
In recent years, HMRC have offered Time To Pay – if you can satisfy them that you will be able to pay later, and you stick to an agreed instalment plan, surcharges are suspended. But it’s crucial to apply before the tax is due, not afterwards. A trader who pleads 'I couldn't pay' to the Tribunal, but who didn’t apply for the help on offer, won’t get much sympathy.
One recent case featured two connected companies that had paid £439,000 in surcharges alone over a three year period. Don’t fall victim to this ruinous penalty – if you think you might not be able to pay your VAT on time, or if you have received a surcharge liability notice, we can advise you on how to minimise the cost.
