News added on 09.10.2017

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Penalties

How to dodge a surcharge (legally)

If you're late submitting a return, HMRC will issue a surcharge notice. If it's your first or second time you won't get a fine so is it safe to treat the notice as just a slap on the wrist?

On the face of it the surcharge regime seems fairly lenient unless you habitually submit your VAT returns late. But there's a problem.

Example. Acom Ltd was late with three out of five consecutive returns. At least two of these occasions were caused by IT problems beyond its control. However, as none of the surcharge notices it received from HMRC was accompanied by a fine, Acom’s directors, who were inexperienced with VAT, didn’t pay them much attention - that was until Acom was late again within the surcharge period. The resulting fine wasn’t the 2% (for a first offence) of the £15,000 VAT it owed, i.e. £300, but 10%, i.e. £1,500. While the first three defaults did not result in a fine for the reasons explained above, each of them counted as a surcharge trigger and therefore increased the rate of fine applied to the fourth late return. What the directors should have done is to appeal against the surcharge notices for which they had a reasonable excuse (“IT trouble”) for submitting late.

Assuming HMRC accepted Acom’s appeals it would have escaped scot-free from the fourth late VAT return and saved itself £1,500. The advice to take from our example is to always appeal against a surcharge notice if you have a reasonable excuse regardless of whether a fine is involved.

Even where a VAT surcharge notice isn’t accompanied by a fine, you should appeal against it if you have a reasonable excuse. A successful appeal means that if you’re late again with a VAT return, the rate of surcharge will be lower and you might even escape a fine altogether.

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