Default surcharge

Produced by Tolley
  • (Updated for Budget 2021)

The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Default surcharge
  • What are defaults?
  • Businesses that will not be liable to the default surcharge
  • Businesses that cannot pay by the due date
  • Accounting schemes
  • Payments on account
  • Non-UK businesses registered under MOSS in respect of B2C supplies made in the UK (until 1 January 2021)
  • What happens if a business defaults?
  • Small businesses
  • Calculating the surcharge
  • More...

Default surcharge

IP COMPLETION DAY: 11pm (GMT) on 31 December 2020 marked the end of the Brexit transition / implementation period entered into following the UK’s withdrawal from the EU. At this point in time, key transitional arrangements came to an end and significant changes began to take effect across the UK’s VAT and customs regime. This document contains guidance on subjects potentially impacted by these changes. Before continuing your research, see the Brexit — overview guidance note.

This guidance note provides an overview of the default surcharge regime and when it will be applied. The default surcharge can be applied when a business submits its VAT return and / or payment after the due date.

For further guidance see also HMRC’s VAT Default Surcharge Officer’s Guide at VDSOG100 and Notice 700/50. For in depth commentary, see De Voil Indirect Tax Service V5.371.

It is worth noting that the default surcharge is to be replaced with a new harmonised penalty system for late payment and late submission of returns for accounting periods beginning on or after 1 April 2022. The legislation underpinning these changes is contained within Finance Act 2021.

What are defaults?

Businesses are legally required to submit their VAT return and any payment by the due date shown on the online screen or the VAT return for any businesses that are still able to send in paper returns (see the Submitting online VAT returns guidance note). The due date is normally one calendar month after the end of the VAT return period.

Businesses will be in default if HMRC has not received the following by the due date:

  1. the VAT return (please note that the business will still be in default if the return is a nil or repayment return)

  2. the full amount due on the VAT return as cleared funds in HMRC’s account

A business should consider introducing systems that will enable it to ensure that it does not incur a default surcharge because the return

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