Commentary

V5.371 Liability to default surcharge

Part V5 Compliance, enforcement and appeals

V5.371 Liability to default surcharge

Default surcharge/penalty for late submission and/or payment

V5.371 Liability to default surcharge

A taxable person is liable to default surcharge if1

  1.  

    (1)     he has been served with a surcharge liability notice2;

  2.  

    (2)     he is in default3 in respect of a prescribed accounting period ending within a surcharge period4 specified in, or extended by, the surcharge liability notice; and

  3.  

    (3)     has outstanding VAT for that prescribed accounting period5.

Where the VAT registration number has been transferred in the circumstances set out in V2.131, any default history of the transferor is not carried forward to the transferee6; a potential rate which might apply should a future failure occur is not “a liability of the transferor existing at the date of the transfer”7.

A person has outstanding VAT for a prescribed accounting period if some or all of the tax for which he is liable in respect of that period has not been paid by the last day on which he is required to make a return for that period8. However, it has been held that where a credit balance held by HMRC exceeds the amount of VAT due from the taxpayer, there is no “outstanding VAT”9. It has also been held that an amount shown in error as output tax on a VAT return (in the case in point, output tax on supplies which should have been treated as exempt) is not “outstanding VAT” and consequently any calculation of a default surcharge should disregard the “VAT” accounted for in error, even if the

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