V5.375 The surcharge

A taxable person is liable to default surcharge if he is in default in respect of a prescribed accounting period ending within a surcharge period specified in, or extended by, a surcharge liability notice1.

The amount of the surcharge is the greater of £30 and the “specified percentage” of the “outstanding VAT” for the prescribed accounting period concerned2. “Outstanding VAT” is tax for the prescribed accounting period of default unpaid by the due date3. It means tax due to have been paid, not necessarily the liability as stated on the return4. There is no “outstanding VAT” if the tax due for a default period is less than any credit balance held by HMRC in respect of the taxpayer in default5. The “specified percentage” is determined by the number of prescribed accounting periods for which a person is in default in a surcharge period6. The specified percentages are7

Date when liability to surcharge arises
First default2%
Second default5%
Third default10%
Fourth or later default15%

A default is regarded as such even if HMRC do not assess a surcharge in respect of it. A Tribunal has held that the rate of surcharge depends upon the number of previous defaults, not whether surcharge assessments have been made in respect of them8. However, Notice 700/50/19 (August 2019) states:

“We won't issue a surcharge in these

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