What’s the Penalty for Filing My VAT Return Late?
HMRC’s regulations usually include details of what happens if you don’t fulfil your liability – from making accidental admin mistakes and missing VAT deadlines, to deliberate tax avoidance. And VAT return filing rules are no different.
There are financial penalties for filing your VAT returns after the deadline and late VAT payments.
As a FreshBooks user, it’s unlikely that you’ll ever need to worry about these rules. All your information is there, ready to go straight into HMRC’s portal in a couple of clicks. But it’s important you know how the whole VAT system works.
Here’s What We’ll Cover:
I’ve Missed My VAT Return Deadline – What’s Going to Happen Now?
Firstly, don’t panic. This isn’t self-assessment, with its automatic immediate fines. HMRC are a bit more lenient with VAT taxpayers.
Getting a Default
HMRC calls missing a VAT return or VAT payment deadline a ‘default’. On a first default, there is no fine to pay. But you do go into a ‘surcharge period’. This surcharge period lasts for 12 months. And if you default again during that time, you’ll either end up with an extended surcharge period or a financial penalty to pay.
No penalty to pay
If you default by missing your VAT return deadline you don’t have to worry about any penalty if:
- You don’t owe HMRC any VAT
- You pay your VAT bill, in full, by the deadline
- HMRC owe you a VAT rebate
How Are the Fines Worked Out?
Penalties for missing VAT submission and payment deadlines are called surcharges. They are worked out as a percentage of your tax bill for the accounting period deadline you missed. You owe this fine on top of your VAT bill. The percentage increases the more defaults you get during a 12 month surcharge period.
The surcharge system is divided into two sets of penalties, one for annual turnover that’s under £150,000 and another for turnover over £150,000. Your first default doesn’t come with any penalty, in either case.
Surcharge if annual turnover is less than £150,000:
- 2nd default: no surcharge
- 3rd default: 2%, or no surcharge if this amounts to less than £400
- 4th default: 5%, or no surcharge if its less than £400
- 5th default: 10% or £30, whichever is the higher figure
- 6th or more defaults: 15% or £30, whichever is more
Surcharge if annual turnover is £150,000 or more:
- 2nd default: 2%, or no surcharge if under £400
- 3rd default: 5%, or no surcharge if less than £400
- 4th default: 10% or £30, the higher of the two
- 5th default: 13% or £30, whichever is more
- 6th or more defaults: 15% or £30, the higher number
HMRC also charges interest on any late VAT payments. This is currently a daily rate of 2.75%.
When deciding on what penalties to give, HMRC takes your previous VAT payment history into account. If you've always met your VAT deadlines in the past, HMRC are more likely to be lenient.
Are There Any Other VAT Related Penalties?
There are some other penalties that HMRC can impose for specific reasons to do with VAT calculations and submissions.
- If you submit a paper VAT return without previously sorting out an exemption with HMRC, there is a £400 fine. Seeing as you’ve got FreshBooks, you really don't need to worry about this one at all.
- If HMRC sends you a VAT calculation that’s too low, you must tell them within 30 days of receipt. Otherwise they’ll fine you 30% of the accurate figure.
- If you make a mistake on your VAT return that HMRC considers to be “careless or deliberate”, HMRC will fine you 100% of the amount of VAT rebate you over claimed for, or the amount of VAT you didn’t state on your return.
How Do I Know If I’ve Got a Default?
If you are late submitting your VAT return or making a VAT payment, HMRC will send you a letter in the post as a reminder. Don’t ignore this. Get it sorted and the issue is resolved.
If you default again, you’ll get a Surcharge Liability Notice in the mail. This tells you that you’re in a 12 month surcharge period and explains all the associated penalties we’ve just outlined for you.
It’s very important to know that HMRC will only contact you by paper mail about this situation. They don’t offer VAT rebates, or demand VAT bills by email, any kind of text message through social media, or in a phone call. Scams of this kind are common and you need to be on your guard. If in doubt, don’t click on any links or attachments, don’t give any information, hang up and call HMRC's VAT helpline on 0300 200 3700.
Meeting Your VAT Responsibilities With FreshBooks
Companies all have a responsibility to fulfil their VAT liability by their VAT deadlines. And now you can see the consequences - and cost - of late VAT returns and missed payment deadlines.
Businesses must have efficient accountancy and admin systems in place. With FreshBooks, you're sorted. It keeps your head out of the paperwork and with your customers. And you know that everything's in the right place at the right time.
Our fully MTD for VAT compliance means that with FreshBooks you'll:
- Meet your tax liability by paying the VAT you owe
- Get a full VAT refund from HMRC
- Avoid surcharges and penalties for missing VAT deadlines
And you'll do it all in the most efficient way possible.