[]

Penalties for mistakes and delays with your VAT

If you submit an inaccurate return that shows too little tax due, or claims too much repayment, you could be liable to a penalty. Similarly, if you fail to submit a return at all, and we assess you for the period but you fail to tell us within 30 days that your true liability was actually greater than our assessment, you could face a penalty.

If you break any of the rules that cover the payment of VAT on imports and exports, you could face a civil penalty of up to £2,500.

This guide explains the circumstances in which you could face a penalty and how penalties are calculated.

On this page:

Default surcharge

If you're registered for VAT, you must submit your VAT return and pay the VAT you owe by the due date. If you don't, you may be liable to a penalty known as default surcharge.

What to do if you have trouble paying VAT

Read our guide on VAT filing and payment deadlines

Read our guide on what happens if you miss VAT filing and payment deadlines

Read our guide about late payment or overclaims of VAT

Top

Mis-declaration penalties

When you might face a penalty

If you submit an inaccurate VAT return that shows too little tax due, or claims too much repayment, you may be liable to a penalty.

If you don't submit a return at all, and we make an assessment that is actually lower than your true liability for the period, then you have to tell us within 30 days. If you don't, you could be liable to a penalty.

The different types of penalty are:

  • a mis-declaration penalty
  • a warning notice for repeated mis-declaration penalty
  • a repeated mis-declaration penalty

These penalties apply if you show significant or repeated lack of care in preparing your VAT return, regardless of whether or not you intended to evade tax.

When you won't face a penalty

In most cases we won't issue a penalty in the following circumstances.

Reasonable excuse. You won't face a penalty if you can demonstrate that you have a reasonable excuse for making the mis-declaration. For example, if you can show that your conduct was that of a conscientious businessperson who accepted the need to comply with the VAT regulations, that may be a reasonable excuse. It's not enough to say that you were honest and acting in good faith.

Genuine mistakes, an inability to pay, or the reliance on someone else who failed to perform a particular task are not reasonable excuses. Nevertheless, you might be able to get a reduction in the penalty if there are mitigating circumstances that fall short of a reasonable excuse - but simply acting in good faith, or not being able to pay, won't get you any reduction.

Other circumstances that might be considered a reasonable excuse could include a computer breakdown, the loss of records, compassionate circumstances or the loss of key personnel. Of course, you'll need to demonstrate that you've tried to overcome the problem.

Voluntary disclosure. You won't face a penalty if you discover and disclose the mis-declaration voluntarily.

Period of grace. If we discover a mis-declaration on your most recent VAT return on or before the due date for the next return, we won't usually issue a penalty, because you're still within the time limit to discover and correct the mistake yourself. This period of grace depends on the type of return:

  • monthly returns - two months
  • quarterly returns - four months
  • annual returns - 14 months
  • final returns - three months after the due date

Nil tax. If an under declaration is corrected by an over declaration for the same transaction in an adjoining period, we might not issue a penalty, because there's no net change in the tax due.

Small penalties. We won't usually bother to issue a mis-declaration penalty that comes to less than £300, or a repeated mis-declaration penalty of less than £30. We will still issue a larger penalty, however, even if it gets reduced below those figures due to mitigating circumstances.

How penalties are calculated

The type of penalty you might be liable for is calculated from a penalty base. If you submitted an inaccurate VAT return, the penalty base is the total of input tax plus output tax for the period in question. If you didn't submit a return at all, and we assessed you for the period but you didn't tell is within 30 days that the assessed amount was less than your true liability, then the penalty base is the net tax due - that is, output tax minus input tax.

If your mis-declaration is £1 million or more, or equal to 30 per cent or more of the penalty base, then you may be liable to a mis-declaration penalty.

If your mis-declaration is £500,000 or more, or equal to ten per cent or more of the penalty base, then if this is the first mis-declaration, you may receive a repeated mis-declaration penalty warning notice on form VAT 670. However, if - within the eight VAT periods following a warning notice - two further mis-declarations meet the test, you may be liable to a repeated mis-declaration penalty on the second and subsequent mis-declaration.

Any one mis-declaration will only receive one penalty - you won't get both types of penalty for the same mis-declaration. If your mis-declaration meets both tests, you'll just be charged a mis-declaration penalty.

For both penalties, you will have to pay 15 per cent of the amount of the mis-declaration for the period in question. However, the penalty can be reduced if there are mitigating factors.

What happens if you are liable to a penalty

We'll tell you in writing if we've charged you a penalty. We'll explain:

  • which mis-declaration made you liable to a penalty
  • the period the penalty applies to
  • the tax amount liable to penalty
  • the amount of any mitigation allowed
  • the amount of any penalty previously assessed the for the period
  • the total amount of penalty for the period
  • how and where to make payment

If you don't agree with the penalty, you can appeal.

Read our guide on what to do if there is a mistake on a VAT return you've filed

Read our guides on correcting mistakes and errors, and making adjustments

Read our guide about late payment or overclaims of VAT

Read our guide on appeals against decisions made on your VAT

Top

Late registration penalty

If you don't tell us at the right time that you should have registered for VAT, then you may face a late registration penalty.

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

Civil penalties for international traders

Our strategy is to encourage you to comply with customs requirements voluntarily, though means such as education, warnings, temporary withdrawal of concessions and amendment of authorisations. However, if you do break any of the rules that cover the payment of VAT on imports and exports, you could face a civil penalty.

The maximum penalty you can face is £2,500 for significant breaches of the rules, and £1,000 for other breaches. Because they are civil penalties, rather than criminal sanctions, you won't acquire a criminal record. You will only be liable to prosecution in exceptional circumstances.

You will only be charged a penalty if we have already sent you a warning letter for committing a broadly similar offence within the last two years. This might have been a serious error in your VAT return, or a failure to comply with customs regulations. If you don't agree with the warning letter, you can ask us to review your case. If you still aren't satisfied after the review, you can appeal.

Read our guide on appeals against decisions made on your VAT

What to do if you find an error yourself

If you discover and disclose a contravention voluntarily, you won't face a penalty.

If you've made an error that has resulted in an under declaration of import VAT, you should inform the post clearance section for the port or airport of importation, and ensure you retain a copy of all correspondence.

If you've made an error on a supplementary declaration that means you've overpaid import VAT, you should complete a form C285 and send it to:

The Centralised Repayment Site
Priory Court
St John's Road
DOVER
Kent
CT17 9SH

If you've made an error on a supplementary declaration that means you've underpaid import VAT, you should write a letter of explanation to:

The CFSP National Post Clearance Team
Peter Bennett House
Wet Park Ring Road
LEEDS
LS16 6RQ

Obtain form C285 Application for repayment/remission

Types of offence

There are three categories of offence that may lead to a civil penalty:

  • Serious errors. These occur when there is at least £10,000 of customs duty or non-recoverable VAT at stake, or when you fail to declare at least £25,000 in the correct payment period.
  • Poor compliance. This is when you have a track record of failing to make VAT declarations on time, completing them carelessly or failing to abide by normal procedures or the terms of authorisations.
  • Deficiencies in systems, records, security of premises etc. This is when you don't meet our requirements in areas such as keeping appropriate records.

How we work out the penalty

In all but the most serious cases, the initial minimum penalty will be £250. If you commit further offences, the next penalty will be £500, then £1,000 and £2,000 until the maximum of £2,500 is reached. Your penalty may be increased if the amount of customs duty or non-recoverable VAT you have underdeclared is more than £50,000. If this amount is more than £100,000, then you will be charged the maximum penalty irrespective of whether this is the first penalty or not. However, your penalty may be reduced if you co-operate fully or take immediate steps to put things right.

What happens when we issue a penalty

If we do decide to issue a penalty, we will do so within:

  • two years from the day on which officials become aware you are liable to a penalty
  • three years from the date you become liable to a penalty

You will be issued with a demand notice.

If you can show that you have a reasonable excuse for a breach of the rules, you won't be liable to a penalty. For example, if you can show that your conduct was that of a conscientious businessperson who accepted the need to comply with the VAT regulations, that may be a reasonable excuse. It's not enough to say that you were honest and acting in good faith.

Other circumstances that might be considered a reasonable excuse could include a computer breakdown, the loss of records, compassionate circumstances or the loss of key personnel.

Genuine mistakes, an inability to pay or the reliance on someone else who failed to perform a particular task are not reasonable excuses. Nevertheless, you might be able to get a reduction in the penalty if there are mitigating circumstances that fall short of a reasonable excuse - but simply acting in good faith, or not being able to pay, won't get you any reduction.

If you aren't satisfied with your treatment, you can appeal.

Read our guide on appeals against decisions made on your VAT

Top

Business Link access to better business | © Crown Copyright | Terms & conditions | Privacy policy | Accessibility | Directgov Straight through to public services