Penalties for mistakes and delays with your VAT

You must submit your VAT Return and ensure that payment of the VAT due has cleared to HM Revenue & Custom's (HMRC) account by the due date. If you don't, you may have to pay what's known as a 'default surcharge', which is a percentage of your unpaid VAT. If you continue to submit or pay late, you will be charged a higher percentage of your unpaid VAT.

If you submit an incorrect VAT Return, HMRC may also charge you an inaccuracy penalty.

This guide explains what happens if you miss the VAT Return and payment deadlines and what you should do to avoid and reduce penalties.

If you have difficulty paying your VAT, you should contact HMRC before the due date on your VAT Return. You can find further details on what to do if you are having trouble paying your VAT within this guide.

On this page:

What happens if you miss a VAT Return or VAT payment deadline

Your turnover is £150,000 or more - what happens if you miss a VAT deadline

If your turnover is £150,000 or more you will be 'in default' if by the due date:

  • HMRC has not received your VAT Return
  • payment of the VAT due has not cleared to HMRC's account

HMRC will send you a 'Surcharge Liability Notice' explaining what will happen if you miss another deadline during the following 12 months, this is called your 'surcharge period'.

If you default again during this 12 month surcharge period, you may also have to pay a 'default surcharge' on top of your unpaid VAT. This is a percentage of your unpaid VAT. Each additional time you send another late VAT Return or payment, your surcharge percentage will increase and your surcharge period will be extended for a further 12 months. The table below explains this further.

Defaults

Surcharge to pay (calculated as a percentage of your unpaid VAT)

Surcharge period

First default

No surcharge. Surcharge Liability Notice issued.

12 months

Second default in a surcharge period

2% (unless it is less than £400, in which case you won't be charged a surcharge at this rate)

12 months from the date of the most recent default

Third default in a surcharge period

5% (unless it is less than £400, in which case you won't be charged a surcharge at this rate)

12 months from the date of the most recent default

Fourth default in a surcharge period

10%

12 months from the date of the most recent default

Fifth and subsequent defaults in a surcharge period

15%

12 months from the date of the most recent default

Your turnover is less than £150,000 - what happens if you miss a VAT deadline

If your turnover is less than £150,000 you will be 'in default' if by the due date:

  • HMRC has not received your VAT Return
  • payment of the VAT due has not cleared to HMRC's account

HMRC will then send you a letter offering help and support. If you default again within 12 months HMRC will send you a 'Surcharge Liability Notice' explaining what will happen if you miss another deadline during the following 12 months, this is called your surcharge period.

If you default again during this 12 months surcharge period, you may also have to pay a 'default surcharge' on top of your unpaid VAT. This is a percentage of your unpaid VAT. Each additional time you send another late VAT Return or payment, your surcharge percentage will increase and your surcharge period will be extended for a further 12 months. The table below explains this further.

Defaults

Surcharge to pay (calculated as a percentage of your unpaid VAT)

Surcharge period

First default

No surcharge. Help letter issued.

None, but if you miss another VAT deadline within 12 months of the issue of a help letter you will formally enter the surcharge system.

Second default

No surcharge. Surcharge Liability Notice issued.

12 months

Third default in a surcharge period

2% (unless it is less than £400, in which case you won't be charged a surcharge at this rate)

12 months from the date of the most recent default

Fourth default in a surcharge period

5% (unless it is less than £400, in which case you won't be charged a surcharge at this rate)

12 months from the date of the most recent default

Fifth default in a surcharge period

10%

12 months from the date of the most recent default

Sixth and subsequent defaults in a surcharge period

15%

12 months from the date of the most recent default

What happens if you don't submit a VAT Return at all

If you don't submit a VAT Return at all, HMRC will estimate the amount of VAT you owe and base the amount of the surcharge on this amount. This is known as an assessment. If after an assessment you still don't send a correct return, HMRC may increase the estimated amount of VAT you owe and base the increased surcharge on that amount.

Find out about VAT Return and payment deadlines

When you will not have to pay a surcharge for late submission or late payment

You will not have to pay a surcharge if you submit:

  • a nil return late (for example, where you have not charged VAT nor paid VAT)
  • a return late when you are due a VAT repayment
  • a return late when you have paid your VAT on time, however, HMRC will record this as a default and extend your surcharge period because of the late return, but they won't increase the rate of surcharge

You will not enter the default surcharge system unless you pay late.

If HMRC agree you have a 'reasonable excuse' for submitting your return or paying your VAT late you will not have to pay a surcharge and HMRC won't extend your surcharge period or increase the rate of surcharge.

Appealing against a surcharge

If you disagree with HMRC's decision to charge a surcharge or how the amount of surcharge has been calculated, you can:

  • ask to have your case reviewed by an officer not previously involved in the matter
  • have your case heard by an independent tax tribunal

If you opt to have your case reviewed you will still be able to appeal to the tribunal if you disagree with the outcome.

If you want a review, you must write to the following address within 30 days of the date the surcharge liability notice extension was sent to you, giving the reasons why you disagree with the decision.

Surcharge Appeals
Crownhill Court
Tailyour Road
Crownhill
Plymouth
PL6 5BZ

Alternatively, you can appeal directly to the tribunal. If you want to appeal you must write to the Tribunals Service within 30 days of the date of the surcharge or extension.

Read more about what to do if you disagree with an HMRC decision

You do not have to write to HMRC yourself. An accountant or adviser can do this for you, but you must tell HMRC that you authorise them to act on your behalf.

What to do if you are having trouble paying VAT

If you have or think you may have difficulty paying your VAT, you should still send in your VAT Return on time and contact HMRC's Business Payment Support Service before your VAT becomes due. However, if you are already in contact with HMRC about a payment problem, or already have an arrangement with them, contact the office that you have been dealing with.

Find out more about the Business Payment Support Service

What to do if you have trouble paying VAT

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Penalties for inaccuracies made on your VAT returns

These penalties apply to inaccuracies in VAT returns when the return period commences on or after 1 April 2008 and the return is due to be submitted on or after 1 April 2009. Other penalties apply in other circumstances.

When you won't have to pay a penalty

If you take reasonable care to complete your VAT Return but make an error despite taking reasonable care, you will not be liable to a penalty.

'Reasonable care' varies according to your circumstances but when taking reasonable care HMRC expect you to:

  • make and keep sufficient records for you to provide a complete and accurate VAT Return
  • update your records regularly
  • take your tax seriously and take care to get it right

You won't be charged a penalty if you pay too much VAT because of an error.

When you might have to pay a penalty

You may be liable to a penalty if

  • your VAT Return is inaccurate, and correcting this means tax is unpaid, understated, overclaimed or under-assessed
  • you don't tell HMRC within 30 days that a tax assessment it has sent you is too low

Telling HMRC about inaccuracies as soon as you are aware of them may reduce any penalty that is due, in some case to zero.

What happens if you are liable to a penalty

HMRC will tell you in writing if it is going to charge you a penalty. This will not be until HMRC have discussed your tax affairs with you and reached a decision on the correct position.

HMRC will explain:

  • which error or errors made you liable to a penalty
  • the period the penalty applies to
  • the tax amount liable to a penalty
  • the amount of any reduction allowed
  • the amount of any penalty previously assessed for the period
  • the total amount of the penalty for the period
  • how and where to pay the penalty

The penalty rate for inaccurate VAT returns

The penalty rate for an inaccurate VAT Return depends on why you made the error. The more serious the reason, the greater the penalty can be. The penalty is calculated as a percentage of the tax unpaid, understated, overclaimed or under-assessed, as a result of the errors.

You will also have to pay the VAT and any interest due in addition to the penalty.

Reason for the error

Disclosure of the error to HMRC
NB A disclosure is unprompted if at the time you tell HMRC about it you have no reason to believe HMRC have discovered it, or are about to discover it.

Minimum penalty (as a percentage of the tax)

Maximum penalty (as a percentage of the tax)

Careless
(you fail to take reasonable care)

Unprompted

0%

30%

Prompted

15%

30%

Deliberate
(you knowingly send HMRC an incorrect document)

Unprompted

20%

70%

Prompted

35%

70%

Deliberate and concealed
(you knowingly send HMRC an incorrect document and try to conceal the inaccuracy)

Unprompted

30%

100%

Prompted

50%

100%

When a penalty might be reduced, suspended or cancelled

HMRC can reduce a penalty within the maximum and minimum range if you:

  • tell it as much as you can about any inaccuracies
  • help it to work out what extra tax is due
  • give it access to your records to check your figures

If a penalty is a result of a 'careless' error, HMRC can sometimes suspend it for up to two years. If HMRC can suspend a penalty, it will impose certain conditions that will stop you making the same error again. If it is not possible to set and agree these conditions a penalty cannot be suspended. If you meet all of the suspension conditions, HMRC will cancel the penalty, provided you do not become liable to another penalty during the suspension period.

HMRC cannot suspend a penalty that comes from 'deliberate' or 'deliberate and concealed' errors.

More about what to do if you discover an error on a return you've already submitted

Other penalties for errors in VAT returns submitted

If you or HMRC discover an error in a VAT Return and an inaccuracy penalty does not apply you may be liable to what's known as a 'misdeclaration penalty'.

More about misdeclaration penalties in Notice 700/42

If you send your VAT Return on paper when you are required to submit your return online you will be charged a penalty.

Read about penalties for submitting a VAT Return on paper instead of online

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What to do if you know you cannot provide an accurate VAT Return by the deadline

If you know that you will be unable to make an accurate return, you should contact HMRC as soon as possible. If HMRC consider that you have a good reason, it may, exceptionally allow you to estimate your Input Tax and/or Output Tax.

If you are allowed to use estimated figures, you will not have to pay a penalty as long as:

  • your return reaches HMRC by the due date
  • any payment of VAT due clears HMRC's account by the due date
  • any amount you declare is properly based on the agreement you make with HMRC

You must get the estimation right or you'll still be liable to a penalty. If you make any other careless or deliberate errors in your return you may be liable to a penalty.

If you ask for approval to use estimated figures on or after the due date, HMRC will consider your request but it will still be recorded as a missed deadline and you may receive a default surcharge.

You must establish the correct amount of VAT. Any resulting adjustment must be included on the return for the next period. If HMRC agrees that this is not possible, you may include any revisions in the following period at the latest.

Contact HMRC

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Late registration penalty

If you don't register with HMRC at the right time for VAT, then you may be liable to a late registration penalty.

Read our guide about what happens if you register late for VAT

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What if you disagree with an HMRC decision

If HMRC makes a decision that you can appeal against, they will write to you explaining the decision and tell you what to do if you disagree.

What to do if you don't agree with an HMRC decision on your VAT

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