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VAT Voice by Steve Allen

Steve Allen, Director of VAT Solutions (UK) Ltd, considers what constitutes a ‘reasonable excuse’ for the purposes of escaping a VAT penalty, and provides tips on e-filing of VAT returns and the payment of VAT.

The computer ate my VAT return!

If you send in a VAT return and/or its payment late, you could find yourself open to a default surcharge. Is there anything you can do about it?

The default surcharge regime works like this:

One free go

if you send in a late return or payment, you receive a Surcharge Liability Notice (‘SLN’) – this is basically a warning letter. If you have another late return or payment within 12 months you get a penalty of 2% of the tax due amount, another late one within 12 months of the previous one, a 5% penalty, then 10%, and finally 15%. If you get your returns and payments in on time for 12 months, you go back to the start with a ‘clean record’. This means you get a free go again next time you default.

Was it late?

You can only submit your returns to the processing unit in Southend. Local VAT offices no longer accept VAT returns. According to HMRC, the return and payment has be received by them by the last day of the month following the end of the VAT period (or that specified on the VAT return if you use non-standard VAT periods). If you post it first class, it should be two days before the due date for the return. If the due date is a Sunday or bank holiday, HMRC should not issue a penalty provided they get the return the next working day.

Were you warned?

HMRC should send you a warning letter (SLN) for your first and subsequent late returns. If they fail to do this correctly, any penalty will be void.

What is an excuse?

If you have what is called a ’reasonable excuse’ you can avoid a penalty, but what is a reasonable excuse? The legislation specifically excludes reliance on others and a shortage of funds from being a reasonable excuse, but the Tribunals have found the following to reasonable:

• No money because your main customer (in this case accounting for 80% of turnover) has not paid you – having no money was not the excuse, it was the reason for having no money that was accepted (Steptoe STC 757 CA)

• The computer broke and ate my records (J & V Printing Services No 6136).

• Damaged, lost, or stolen records are reasonable excuses.

• The serious illness of a key employee at the time of completing the VAT return (Fitz Bender Metals No 5426) – pregnancy or holidays are not an excuse as you should be able to plan round it in advance!

Sometimes you can negotiate a lower penalty with HMRC, so don’t be afraid to haggle!

Electronic VAT returns and electronic payments

HMRC will now accept electronic VAT returns, but payment also has to be made electronically. The good news is that you get an extra 7 days to submit the return and payment. You should get a receipt from HMRC, which you should print off and keep as evidence. Sometimes the system gets overloaded (at the quarter ends) and does not send a receipt, but our sources in HMRC say that provided they have it on file, they can tell when it was received, so you should not get a penalty Even if you send in paper returns, you can still pay electronically and get the extra 7 days to send in the return and pay.

Talk to HMRC – If you think that you will not be able to pay your return, let HMRC know in advance, and agree a time to pay arrangement with him.

Tip – If you can pay some, but not all, of the return, send in what you can on time with the return, as the penalty is only calculated on the outstanding amount, not the full liability on the return.

HMRC take a tough line – In the last couple of years, we have seen HMRC starting to use its powers to require a security deposit from businesses that are persistently late with their returns. In many cases, this can take a business under.

November 2005

Steve Allen
Director, VAT Solutions (UK) Ltd
Email: steveallen@vatsolutions-uk.com

VAT Solutions (UK) Ltd
11 Winmarleigh Street,
Warrington,
WA1 1NB

(T) 01925 242497
(F) 01925 242498
(M) 07810 433927
(W) www.vatsolutions-uk.com

VAT Solutions (UK) Limited is an established independent firm of Chartered Tax Advisers, formed by Andrew Needham and Steve Allen. The company has a cross-section of clients from multi-national companies through to medium-sized and numerous smaller regional firms of accountants and solicitors. They produce a regular publication 'VAT Voice', which can be downloaded directly from the Internet via the following address: http://www.vatsolutions-uk.com/archive.htm