Contractors’ Questions: What if I filed my VAT return late, twice?

Contractor’s Question: What can I expect from HMRC as a VAT-registered limited company contractor whose VAT returns were filed late, twice in the last year? I forgot to pay on time once as well. And how do I avoid this reoccurring in the future?

Expert’s Answer: In cases of VAT (unlike many other taxes), HMRC does give the taxpayer a small amount of leeway with regard to late submission of returns and late payment before issuing penalties. The VAT return filing deadlines and payment deadlines are explained by HMRC on its webpage. Guidance on penalties relating to VAT is also available.

A handy tip for avoiding paying your VAT late is to setup direct debit for VAT with HMRC, which you can do through your VAT HMRC online account. This has the added benefit of giving you a few extra days for the VAT to be paid compared to the normal payment deadline.

With regards to penalties, HMRC records an initial default without issuing a surcharge or penalty the first time that either of the following occur:

  • Your VAT return is not received by the deadline
  • Full payment of any VAT owed is not paid by the deadline

At this point you enter a 12-month period called the ‘surcharge period’. A further default during this 12-month period leads to the surcharge period being extended for a further 12 months and you may have to pay a surcharge on the amount of VAT owed.

The surcharges (penalties) are calculated based on a percentage of the VAT outstanding on the due date of the VAT period in question and they are calculated based on the table below.

Defaults within 12 months

Surcharge if annual turnover is less than £150,000

Surcharge if annual turnover is £150,000 or more


No surcharge

2% (no surcharge if this is less than £400)


2% (no surcharge if this is less than £400)

5% (no surcharge if this is less than £400)


5% (no surcharge if this is less than £400)

10% or £30 (whichever is more)


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)

However there are some exceptions to this -- there will be no surcharge for a late VAT return if:

  • You have paid all your VAT by the due date
  • There is no VAT to pay / you are due a VAT repayment

Going back to your question, you say you filed your VAT return late twice and paid another VAT return late, all within a one year period. Assuming you were not already in a surcharge period before these returns and assuming your annual turnover is less than £150,000, then this would count as three defaults and the surcharge due would be 2% of the VAT. However if this is less than £400, then no VAT surcharge would be due, so you may be lucky.

If you are not careful with VAT surcharges, they can mount up so it is important that you file and pay future VAT returns on time.

The expert was John Falcon of JF Financial, a boutique online accountancy firm for contractors.

Wednesday 29th Nov 2017
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