VAT Surcharge

System
System Posts: 100,537 πŸ€– Admin πŸ€–
edited June 9 in General accounting discussion
Some experience would be welcomed please in dealing with a VAT surcharge issue.

My client, it would appear, is consistently late with vat returns - the business is a couple of years old and is struggling in terms of cash flow.

I am obviously aware of the surcharging scheme and am reasonably comfortable that the latest issue can be argued in terms of some extensive IT problems and also staff turnover - we shall see how we go with that !

However, the bit that I need some experience with is the fact that surcharging works on a rising scale so that to be honest - if you end up paying 15% then you can't say that you haven't had fair warning. However, HMRC have jumped in straight for 15% as they say that previous indiscretions weren't worth charging for (turnover < £100k). As far as I am aware there has been no notice in terms of surcharges - surcharge periods or waiving surcharge fees. Interestingly, 2% of a £2K bill would have got the attention of both my client and alerted myself earlier on. As you can imagine 15% on a £4K bill has now achieved a high level of attention.

Advice would be appreciated - many thanks

Comments

  • System
    System Posts: 100,537 πŸ€– Admin πŸ€–
    Re:VAT Surcharge

    Hi Sevren

    Customs must first issue a Surcharge Liability Notice (SLN) this notice tells the trader that they have been in default and it is the trigger that starts a 4 return notice period. If further defaults happen within this time, this is when the surcharge rates kick in. If there is a further default it also restarts the clock for the SLN period.

    The rates are:
    1st default = 0% - issue of the SLN
    2nd default = 2%
    3rd default = 5%
    4th default = 10%
    5th default = 15%

    Apparently your client is in his 5th default?!

    Defaults can either be by failing to pay or file the return on time.

    Here is some further guidance for you:
    http://customs.hmrc.gov.uk/channelsPortalWebApp/downloadFile?contentID=HMCE_PROD1_024304

    That should tell you everything you need to know.

    Regards

    Dean
  • System
    System Posts: 100,537 πŸ€– Admin πŸ€–
    Re:VAT Surcharge

    Very many thanks Dean
  • System
    System Posts: 100,537 πŸ€– Admin πŸ€–
    Re:VAT Surcharge


    Please note, the text below is not given as advice and should not be treated as such but is just departed as simple information;

    We received our 1st default notice following the last VAT quarter and our VAT for this period - approx. £20k - is due again by the end of this month which we are also unlikely to meet. While acknowledging this will result in 2% surcharge or £400, we're probably prepared to bite the bullet this time and defer our payment (plus accruing interest) for as long as we can get away with. No doubt HMRC will go mad as always but hey ho. The increasing penalties i.e. 5, 10% etc we can worry about when they get nearer.

    I also discovered exactly how long you can get away with not paying your PAYE for which was way longer than I expected. Unlike VAT, there are no penalties for paying late that I'm aware of (not counting the threat of distraint which took a while)

    Again, I must stress that these are NOT recommended courses of action for any other company. If people object to this post, I will of course remove it.

    Best regards,

    Robert
  • System
    System Posts: 100,537 πŸ€– Admin πŸ€–
    Re:VAT Surcharge


    Damn double post caused by damn slow website!
  • System
    System Posts: 100,537 πŸ€– Admin πŸ€–
    Re:VAT Surcharge

    Hi Robert

    If you have a look at that link I posted, and in particular section 3.4.1 which states:

    ο»Ώ3.4.1 Minimum amount of surcharge
    Where a liability to surcharge is established no surcharge assessment will be issued if:

    *the amount calculated is less than £400 (or £200 for returns due before 31 December 2001);and
    *it is calculated at the 2% or 5% rates.

    Basically, if your surcharge liability comes out to be less than £400 in the 2nd and 3rd defaults you will not be issued a penalty. You do however move up the default ladder!

    Regards

    Dean
  • System
    System Posts: 100,537 πŸ€– Admin πŸ€–
    Re:VAT Surcharge

    This is what has caught my client out. I am trying to establish when the HL letter and subsequent SLN's were issued from HMRC's perspective but my client maintains they have never been received. This has come as a shock as he has moved up the scale apparently with no knowledge and now the penatly is > £400 and indeed £750 !. This may not sound much but is fairly devasting to a small business. This must be a common problem albeit the first time I have come accross it.

    It was interesting to see Robert's comments on PAYE payments - paying later than the 22nd of the month is one of those boundaries that is interesting to test where cashflow is a problem !

    Many thanks
  • System
    System Posts: 100,537 πŸ€– Admin πŸ€–
    Re:VAT Surcharge
    Sevren wrote:
    my client maintains they have never been received
    A likely story! Got the escalating ones fine though, didn't they?!! If owners don't see figures in terms of pound signs they tend to hide and ignore them!
    Sevren wrote:
    This must be a common problem albeit the first time I have come accross it
    Extremely common I'd imagine! When I first contacted HMRC I fully expected them to be quite harsh but they were actually quite understanding, bordering almost on human! However, that was about PAYE - I don't think the VAT squad are quite so nice so be warned.
    Sevren wrote:
    It was interesting to see Robert's comments on PAYE payments - paying later than the 22nd of the month is one of those boundaries that is interesting to test where cashflow is a problem!
    I've sent you a PM about this!

    Regards,

    Robert
  • System
    System Posts: 100,537 πŸ€– Admin πŸ€–
    Re:VAT Surcharge

    With reference to late PAYE payments, one of my clients pays very late regularly.
    In fact, this client waits until an actual body turns up at his premises to collect the money!!! :shock:


    Sharon
  • System
    System Posts: 100,537 πŸ€– Admin πŸ€–
    Re:VAT Surcharge
    Shaxxa wrote:
    With reference to late PAYE payments, one of my clients pays very late regularly.
    In fact, this client waits until an actual body turns up at his premises to collect the money!!!
    I think either Helen or Farmer G has said this before too! The big question is though - is this good policy or bad policy since it's easy to see benefits in the former but not too much in the latter! Why pay early if you can get away with paying late and without penalty?
  • System
    System Posts: 100,537 πŸ€– Admin πŸ€–
    Re:VAT Surcharge

    Many thanks all - interesting debate with HMRC ahead !
  • System
    System Posts: 100,537 πŸ€– Admin πŸ€–
    Re:VAT Surcharge

    Delaying PAYE is always fun.

    The problem for HMRC is that, unlike any other return, they never know how much PAYE is actually due until the end of the year.

    So (theoretically of course) you could throughout the year return nil payslips and then pay it all in one go by April 22nd!
  • System
    System Posts: 100,537 πŸ€– Admin πŸ€–
    Re:VAT Surcharge

    deanshepherd wrote:
    Delaying PAYE is always fun
    I'm quite shocked at all you highly respectable MIP's coming on here and almost endorsing stiffing the Revenue! Can I also take it you're all speaking from experience?!

    Did anyone at the back also shout out "CIS" or was that just me?! :?

    Robert
  • System
    System Posts: 100,537 πŸ€– Admin πŸ€–
    Re:VAT Surcharge


    A lot of accountants will highlight this tactic. It's especially beneficial to cashflow if large bonuses are paid.

    The only problem might be if a reconcilation was calculated during a compliance visit for the current year.

    However, if you get the officer I had last time, he won't spot it!
  • System
    System Posts: 100,537 πŸ€– Admin πŸ€–
    Re:VAT Surcharge

    This may show my lack of experience - but I have made an assumption that there is a correlation between not making regular PAYE payments and attracting an inspection ?
  • System
    System Posts: 100,537 πŸ€– Admin πŸ€–
    Re:VAT Surcharge


    There are other factors too, but yes - if you don't pay on time you would get flagged up.

    They do try to inspect everyone on a regular basis, but I had 7 years between compliance visits for payroll and 5 for VAT.

    Apparently the VAT visit was triggered in part because I had requested advice on the VAT status of a complicated job - 17.5%, 5% and zero.

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