VAT Late Payments: Fines, Penalties & Interest

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VAT Late Payments

VAT Late Payments are not looked upon favourably by HMRC and be an indication of something more serious within a business such as a cash flow problem or slow sales.  In the event of a VAT Late Payment HMRC can issue three types of charges – interest, penalties and surcharges.

Interest on VAT Late Payments

HMRC can charge you interest at 2.75% on VAT late payments if:

  • You pay your VAT late;
  • If you submit an incorrect VAT return and do not pay them the correct amount of VAT;
  • You choose to pay a VAT Assessment but that amount ends up being lower than your true VAT once you bring your VAT up to date.

You’ll be charged interest for as long as you don’t pay, up to a maximum of 2 years.

Penalties on VAT Late Payments

HMRC can charge you a penalties in the event that a payment you make is incorrect. These are the penalties on late payments made in these ways:

  • 100% of any VAT understated or overclaimed if you submit a return that contains an error, either accidental or deliberate;
  • 30% of a VAT Assessment if HMRC sends you one that’s too low and you don’t tell them it’s wrong within 30 days;
  • £400 if you submit a paper VAT Return, unless HMRC has told you you’re exempt from submitting your return online.

VAT Surcharges

Surcharges can occur when a late payment is made for the VAT due on a particular return has not reached HMRC by the deadline.

HMRC calculates the amount of surcharge due as a percentage of the VAT outstanding for the VAT quarter that is in question.

Here’s a summary from HMRC showing how VAT surcharges are calculated:

Defaults within 12 months Surcharge if annual turnover is less than £150,000 Surcharge if annual turnover is £150,000 or more
2nd No surcharge 2% (no surcharge if this is less than £400)
3rd 2% (no surcharge if this is less than £400) 5% (no surcharge if this is less than £400)
4th 5% (no surcharge if this is less than £400) 10% or £30 (whichever is more)
5th 10% or £30 (whichever is more) 15% or £30 (whichever is more)
6 or more 15% or £30 (whichever is more) 15% or £30 (whichever is more)

No surcharge will be levied if you submit a late VAT Return and:

  • pay your VAT in full by the due date;
  • have no tax to pay;
  • are due a VAT repayment;
  • Submit a VAT return or make a late VAT Payment for the first time.

HMRC are famously very intolerant of VAT Late Payments since as a business you are merely acting as a collecting agent on their behalf so those funds should never be in use elsewhere.  If you do find yourself making VAT Late Payments you should take a close look at the reasons behind these late payments and even seek the help of a professional if need be.