Excuse for late payment
If you pay your VAT late more than once in a year you will get a default surcharge. This starts at 2% of the VAT due, and rises every time you are late again (within 12 months) to 5%, 10% then 15%. This applies where your payment is even one day late!
One way to get out of the surcharge penalty is to claim you have a reasonable excuse for paying late.
Not having the funds to pay is generally not accepted as a reasonable excuse, as the Vatman thinks you should put aside the VAT element of the sale when the customer pays you. If the customer hasn’t paid by the time the VAT is due, you are expected to borrow the funds needed from your bank. In this age of 24 hour online banking it is difficult to prove you didn’t have access to banking facilities.
Bews & Sons located in the Orkney Islands tried to do just that when a customer unexpectedly paid late. However, banking services in the Orkneys are limited and a bank manager on the mainland took a week to deal with the loan request. The Tribunal decided that Bews had a reasonable excuse for late payment, in view of the restricted banking facilities.
It is better to make sure you don’t pay your VAT late at all. If you receive a warning letter from HMRC, don’t ignore it – talk to us about how to minimise the risk of penalties.