Andrew Needham looks at the consequences of submitting a late return or not sending one in at all.
The deadline for submitting the return online and paying HMRC are usually the same - one calendar month and seven days after the end of an accounting period. One day late and a default will be recorded.
How much?
For the first late return a business is sent a warning letter. If there is another late return within 12 months a penalty of 2% of the tax due will be applied if the turnover is more than £150,000; if the turnover is less than £150,000 no penalty is applied. Subsequent late returns will generate a 5%, 10%, and 15% penalty. Where a 2% or 5% penalty applies if it is less than £400 no penalty is due, and for 10% and 15% penalties a minimum of £30 is due.
If the businesses sends all its returns and payments in on time for the next 12 months the clock is reset.
Cashflow problems
If a business does not have the funds to pay its VAT liability it should still send its return in on time and contact HMRC’s business support line and arrange a time to pay agreement with them (normally three to six months), which will avoid a default surcharge penalty. It is therefore important to send in the return and agree a time to pay arrangement with HMRC rather than ignore the problem and hope it will go away – it won’t!
If a business receives a surcharge for a late return/payment it can appeal the penalty if it has a reasonable excuse. However, specifically excluded from being a reasonable excuse are:
- a shortage of funds; and
- reliance on others.
System breakdown
If a business cannot complete its VAT return because of a systems breakdown or similar reason it can estimate its return provided it gets prior permission from HMRC. The figures should be adjusted on the next return, if possible.
If the estimated return and payment are submitted by the due date, no default is recorded.
Missing returns
If a business fails to send in a return at all and is a ‘payment trader’ (i.e. pays money to HMRC), HMRC will calculate what it thinks is due and send an assessment for that amount to the business for payment. If the business pays the assessment knowing that it is significantly less than its actual liability it could be liable to a penalty for deliberately concealing the facts from HMRC, up to 100% of the tax due.
If the business thinks that the assessment is too high it cannot appeal HMRC’s decision unless it sends in its VAT return, which automatically cancels the assessment anyway.
If the business continues to fail to send in its returns, the assessments issued by HMRC get larger and larger to encourage the business to send in its return. HMRC will also issue a penalty based on its own assessed amount and that will then be recalculated when the return is eventually submitted.
If a business is normally in a repayment position and fails to send in its return the period will remain open but HMRC will not make any further repayments until the return is submitted.
When a return is not sent in, the normal four year time limit for issuing assessments does not apply and HMRC can enforce the debt for any missing returns once they have established the liability due to them no matter how long ago, as they require that the return is submitted.
Practical tip
If a business sends in its returns late it will receive a penalty and an assessment that can’t be appealed unless it sends in the missing return. There is no time limit on the collection of any money due on an outstanding return.
