Default surcharge

By Tolley

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

  • Default surcharge
  • Draft Finance Bill 2018–19
  • What are defaults?
  • 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
  • What happens if a business defaults?
  • Reasonable excuse
  • Appeals

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.

HMRC Notice 700/50 ; VATA 1994, ss 59, 59A, 59B; De Voil Indirect Service V5.371 (subscription sensitive)

HMRC has published a new manual called VAT Default Surcharge Officer’s Guide which can be accessed via the following link VDSOG100.

Draft Finance Bill 2018–19

The Government has published draft Finance Bill 2018–19 which includes provisions to replace the default surcharge with a two-tier points-based penalty regime. The draft clauses are contained in Draft Finance Bill 2018–19 , Cl 30 and Sch 11.

Schedule 12 also contains provisions to introduce an amended penalty system for deliberately withholding information from HMRC

A brief overview of the changes announced is provided below.

The changes are intended to introduce a single penalty system that will eventually apply to all taxes. The current draft proposals do not cover corporation tax and IHT, and only VAT and Income Tax Self Assessment will be included in the first phase.

The new system is points-based and points will be accumulated for each return failure with a penalty being levied once a certain number of points have been accrued. Once the person has exceeded the threshold, penalties will continue to be levied until all outstanding returns have been submitted and the person remains compliant with regard to submitting returns.

Another more punitive penalty system will be introduced where a person has deliberately withheld information when the person failed to submit the return and this is largely based on the existing rules in Schedule 55.

The actual penalty rate has not yet been set and the default surcharge system will cease to apply once the new legislation has come into

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