VAT surcharges

Ignore at your peril the receipt of a surcharge liability notice (SLN) or a letter of help issued to small businesses with a turnover of £150,000 who miss a deadline. What deadline? Either the filing date of a VAT return or the date for paying the VAT.

The surcharges can be avoided if ‘reasonable excuse’ can be shown. If you get a surcharge liability notice you have to be compliant for the four succeeding quarters to get out of the surcharge period. If you do not escalating penalties of 2%, 5%, 10% and 15% of the VAT that was due will be charged although penalties up to £400 are not collected at the 2% or 5% level.

In a recent case held at the First Tribunal a trader with a modest turnover did not keep on top of her VAT affairs and had reached the maximum 15% penalty level. In one quarter she sold a parcel of land on which there was an option to tax in place so VAT was charged on the sale. The sale price was over £10m and the VAT due over £2m. The return was submitted on 12 October (7 days late) and the payment was made on 15 October (5 days late if taken by DD). The result – a surcharge of £217,701.52! And the tribunal upheld the penalty. She did not have a reasonable excuse.