One day late VAT payment meant £297K fine

Have you heard the one about the £297,845 fine for late VAT payment by just one day?

That’s right. In a recent court case a company was fined £297,845 for being one day late in paying their VAT.

This only goes to show the unpredictable, and seemingly harsh outcomes of HMRC’s VAT surcharging rules.

Why you shouldn’t worry

If you pay your VAT on time (quarterly or monthly) and file your VAT returns in before the deadlines, you need not fear VAT surcharge liabilities. They only happen if you’re a late filer or late payer. So avoid being that if you can.

You need to remember the VAT default surcharges increase each time a default occurs: from 2%, 5%, 10% and 15%. The only way to reset the penalty clock back to zero is to be free of default events for a complete calendar year.

Why you maybe should worry

In this particular case the company had various past defaults and had reached the 10% penalty band. The VAT liability was £2,978,459, and therefore the penalty was £297,845.

The company couldn’t produce a compelling excuse for the late payment and the court therefore upheld the surcharge.

Whilst the outcome of this case was exceptional, £297,845 seems an extraordinary amount to pay for being one day late in settling a bill. However, it’s a salutary reminder to file and pay VAT returns before the due dates to avoid being on that default surcharge treadmill. And if you do default, redouble efforts to file and pay on time for a full year to reset the default clock to zero.

If you’re late filing and have fines already, then talk to our resident VAT expert, who is an ex HMRC Inspector. She speaks their language and can possibly sort things out when all hope seems lost.