Submitting VAT & PAYE on time

VAT Returns

Surcharges and penalties.

HM Revenue and Customs (HMRC) record a ‘default’ if:

  • they do not receive your VAT return by the deadline
  • full payment for the VAT due on your return has not reached their account by the deadline

Surcharges

You may enter a 12-month ‘surcharge period’ if you default. If you default again during this time:

  • the surcharge period is extended for a further 12 months
  • you may have to pay an extra amount (a ‘surcharge’) on top of the VAT you owe

If you submit a late return, you will not have to pay a surcharge if you:

  • pay your VAT in full by the deadline
  • have no tax to pay
  • are due a VAT repayment

HMRC will write to you explaining any surcharges you owe and what happens if you default again.

How much you pay

Your surcharge is a percentage of the VAT outstanding on the due date for the accounting period that is in default. The surcharge rate increases every time you default again in a surcharge period.

This table shows how much you’ll be charged if you default within a surcharge period.

Defaults within 12 months Surcharge if annual turnover is less than £150,000 Surcharge if annual turnover is £150,000 or more
2nd No surcharge 2% (no surcharge if this is less than £400)
3rd 2% (no surcharge if this is less than £400) 5% (no surcharge if this is less than £400)
4th 5% (no surcharge if this is less than £400) 10% or £30 (whichever is more)
5th 10% or £30 (whichever is more) 15% or £30 (whichever is more)

Penalties

HMRC can charge you a penalty of up to:

  • 100% of any tax under-stated or over-claimed if you send a return that contains a careless or deliberate inaccuracy
  • 30% of an assessment if HMRC sends you one that’s too low and you do not tell them it’s wrong within 30 days
  • £400 if you submit a paper VAT Return, unless HMRC has told you you’re exempt from submitting your return online

Late payment penalties for PAYE and National Insurance

Penalties.

HMRC charges late payment penalties on PAYE amounts that are not paid in full and on time.

These include:

  • monthly, quarterly or annual PAYE
  • student loan deductions
  • Construction Industry Scheme (CIS) deductions
  • Class 1 National Insurance contributions (NICs)
  • annual payments of employers’ Class 1A and Class 1B NICs
  • determinations made by HMRC where it appears that there may be further tax payable
  • decisions, for example about a person’s liability to pay NICs and the amount payable

How much you pay

Late monthly and quarterly PAYE payments

Number of defaults in a tax year Penalty percentage applied to the amount that is late in the relevant tax month (ignoring the first late payment in the tax year)
1 to 3 1%
4 to 6 2%
7 to 9 3%
10 or more 4%

Daily interest will continue to build up on all unpaid amounts from the due and payable date to the date of payment.

Additional penalties

You’ll be charged a late payment penalty if you pay less than is actually due.

If you’ve still not paid a monthly or quarterly payment in full after 6 months, you’ll be charged an additional penalty of 5% of the amounts unpaid.

A further penalty of 5% will be charged if you’ve not paid after 12 months.

These additional penalties apply even where only one payment in the tax year is late.

End of year adjustments

If you pay an adjustment after the end of the year under a special arrangement you’ll not be charged late payment penalties, as long as you keep to the terms of the arrangement.

Examples of these are the ‘Intermediaries’ rules (often referred to as IR35) or a formal modified PAYE arrangement known as ‘Employment Procedures Appendix 6’.

Amounts due annually or occasionally

You may have to pay a penalty if you have not paid the full amount by the date known as the ‘penalty date’.

For payments such as Class 1A and Class 1B NICs, HMRC determinations and assessments, amendments or corrections to returns, the ‘penalty date’ is 30 days after the due date. For these payments you may have to pay:

  • a 5% penalty if you have not paid the full amount within 30 days of the due date
  • an additional 5% penalty if you have not paid the full amount within 6 months of the due date
  • a further 5% penalty if you have not paid the full amount within 12 months of the due date

In most other cases, the penalty date is the day after the due date.

Stopping your claim

A notice will include what you owe, how to pay and what to do if you do not agree with HMRC’s decision to charge you.

Pay the penalty within 30 days of getting the notice – you’ll be charged interest if you do not.

You can appeal online using HMRC’s PAYE for employers service. Once you’ve logged in, select ‘Appeal a penalty’. You’ll get an immediate acknowledgement when you submit your appeal.

In some cases, HMRC will accept and settle the appeal automatically.

These are some of the reasons you can give as grounds for appeal:

  • data on the returns was incorrect
  • death or bereavement
  • fire or flood or natural disaster
  • ill health
  • information technology difficulty
  • no longer have any employees
  • no payments to employees
  • paid on time
  • theft or crime
  • time to pay arrangement in place
  • other

You can also send your appeal in writing to:

The Notice of Penalty Assessment will contain a ‘Unique ID’ for each penalty shown on the notice.

You must include the Unique ID to identify which penalty you wish to appeal against.

*Information on this page was correct as of 1st September 2019.

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