Loan sharks?
Default surcharge is the penalty for paying VAT after the due date, and it’s nasty – you can add up to 15% on top for being a day late. It could be cheaper to borrow from the local mafia so you can pay the VATman on time.
Given the state of the economy, it’s not surprising that the Tribunal is full of people trying to get out of paying surcharges. Many of them failed to realise that they had a problem – HMRC kindly don’t charge for the first two late payments by a small business, and they don’t collect 2% or 5% surcharges if they are less than £400. So you can be on your fifth default before they ask you for money – and then it’s at 10%, with a history of poor compliance to reduce the Tribunal’s sympathy if you appeal.
It’s important to realise that the surcharge isn’t supposed to be interest – if it was, it would obviously be unreasonably high. It’s a slap on the wrist for breaking the rules, not compensation to the government for not having the money. Twice in the last year the Tribunal has said the penalty was so unfair that it ought to be cancelled, but in general the harshness of the charge won’t get you out of it. One company was a day late paying £1.35m because an accounts clerk had told the bank to pay £11.35m and the bank had queried it – so they tried to pay £10m too much and ended up paying nothing until the next day. The surcharge of £22,700 was confirmed.
Surcharge warnings are printed on yellow paper to try to get traders to notice them. If you receive one, don’t ignore it – we can advise you on the best way to make sure it doesn’t cost you money.
