It is vital you file your return to HMRC before your VAT payment deadline to avoid potentially substantial fines.
If your business is filing its VAT return late, you will be issued a surcharge. HMRC will assess the amount you owe on your due date and calculate the surcharge as a percentage of what is owed.
What is the VAT Payment Deadline?
As you no doubt already know, VAT stands for Value Added Tax, it is collected any time that you sell your products or services.
You need to file a VAT return with HMRC every quarter, each return covering your activity in three months.
The deadline to submit your VAT return is one calendar month and seven days after your accounting period ends. So, if your VAT period ends on June 30, HMRC will require payment by July 7.
You must also allow enough time for the payment to reach HMRC’s account.
Your VAT return will contain sales and purchases, the amount you owe, and the amount you can reclaim.
It’s important to remember you must file a return even if you don’t have VAT to pay or claim back.
You can work out the deadline for your accounting period using the payment deadline calculator at gov.uk.
How Can You Pay Your VAT Bill?
There are several methods your business can use to pay its VAT bill. The most important thing is ensuring the funds reach HMRC before your VAT payment deadline. Otherwise, you could face having to pay a surcharge. In this instance, online or telephone banking are the most effective ways to pay.
You can also pay your bill via CHAPS (Clearing House Automated Payments System). This automatic payment system ensures HMRC will receive payment the same day you authorise it.
You can pay via direct debit, BACS transfer, or standing order if you have more time before your deadline.
If your deadline is on a weekend or bank holiday, your VAT payment must reach HMRC on the last working day before that.
What is the Penalty For Late Filing Of VAT Returns?
Running a business can be stressful, so the last thing you need is a penalty for late VAT Return filing. Unfortunately, while you focus on time-consuming aspects of your business, it’s easy for important admin tasks to slip through the cracks.
If your business is filing its VAT return late, you will be charged a surcharge by HMRC.
They will assess the amount you owe on your due date and calculate the surcharge as a percentage.
Your first late payment during this surcharge period is 2% of the outstanding amount. This rate will then rise to 5%, 10%, and 15% for further payment defaults.
New rules starting in 2023 will see the HMRC default surcharge replaced by a points-based system. There will also be a change to how your business’s VAT interest is calculated.
These changes will affect everyone who submits their VAT return for accounting periods starting on or after January 1st.
After this time, penalties for being late with your VAT return will be calculated using the new points-based system.
Each time you submit a late return, you will receive one late submission penalty point.
The threshold for penalty points will depend on your submission frequency. So, if you file your VAT return annually, the threshold is two points. Quarterly is four points, and monthly is five points. The period for compliance for these is 24 months, 12 months, and six months respectively.
When you reach your penalty threshold, you will be subject to a £200 fine and a further £200 penalty for each late submission after.
There are two ways you can reset your points back to zero:
- Submit your VAT returns on or before your due date during your period of compliance.
- Ensure that HMRC receives any outstanding returns due for the previous 24 months.
What Happens if You File Your VAT return Late?
There are several reasonable excuses why you may be late filing your VAT return. These include:
- Death of a partner or close relative.
- An unexpected hospital stay.
- A serious or life-threatening illness (this may include Covid-19 in some instances).
- Problems with your computer or software – if you were planning to submit or pay online.
- Issues with HMRC’s online services.
- Fire, flood, or theft.
- Unpredictable postal delays.
- Disability-related delays.
Whatever your circumstances, you must still send your return or payment to HMRC as soon as possible.
What are the Penalties for Late Payment of VAT?
If you miss your deadline for paying VAT to HMRC and are liable for penalties, you will also be required to pay interest on the payment from the date it was due.
Your first late payment during this surcharge period is 2% of the amount outstanding. This rate will then rise to 5%, 10%, and 15% for further payment defaults.
If this is the first time you’ve missed the payment deadline, HMRC will usually not penalise businesses that make a payment up to 15 days after their due date.
However, HMRC will not accept the following as reasonable excuses:
- Making a mistake.
- Finding HMRC’s online system is too difficult.
- Not getting a reminder from HMRC.
- Relying on someone else to send your return.
- Not having enough money in your account.
Final Notes on Late VAT Returns and Penalties
It’s important to keep on top of your VAT return deadlines. You’ll save a lot of hassle and potentially a lot of money that could better be spent on growing your business.
The key with anything is communication, and HMRC is likely to be more understanding if you keep them informed of any reasons why you think you might be late filing your VAT returns.
If you need help understanding your VAT returns or are in danger of missing your payment deadline, get in touch with the Future Strategy team today.