Massive fine for making VAT payment one day late

In a recent case considered by the courts a company was fined £297,845 for being one day late in paying their VAT.

The case highlights the unpredictable, and seemingly harsh outcomes of HMRC’s VAT surcharging rules.

If you pay your VAT on time, whether quarterly or monthly, and you make sure that you file your VAT returns in good time, before the filing deadlines, you need have no fear of incurring VAT surcharge liabilities. They only arise if you are a late filer or late payer.

A key point to remember is that the VAT default surcharges increase each time a default occurs: from 2{11092aa1eab99d85b02efc0ee3c04dc4f5b81bebfc2bd8f608402c1b0eb15b7e}, 5{11092aa1eab99d85b02efc0ee3c04dc4f5b81bebfc2bd8f608402c1b0eb15b7e}, 10{11092aa1eab99d85b02efc0ee3c04dc4f5b81bebfc2bd8f608402c1b0eb15b7e} and 15{11092aa1eab99d85b02efc0ee3c04dc4f5b81bebfc2bd8f608402c1b0eb15b7e}. The only way to reset the penalty clock back to zero is to be free of default events for a complete calendar year.

In the case highlighted in this article, the company had various past default events and had reached the 10{11092aa1eab99d85b02efc0ee3c04dc4f5b81bebfc2bd8f608402c1b0eb15b7e} penalty band. It’s VAT liability was £2,978,459, and therefore the penalty was £297,845.

Unfortunately, the company could produce no compelling excuse for the late payment and the court upheld the surcharge.

Whilst the outcome of this case was exceptional, £297,845 seems an extraordinary amount to pay for being one day late in settling a bill, it is a salutary reminder to file and pay VAT returns before the due dates so that you do not find yourself on the default surcharge treadmill. And if you do default, redouble efforts to file and pay on time for a full year to reset the default clock to zero.

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