How to avoid a VAT penalty

When a business submits its VAT returns or VAT payments late, whether via MTD sofware or the old HMRC website, the business will enter the VAT penalty surcharge system.

Small businesses with turnover of less than £150,000 get one free pass, so will receive an advice letter from HMRC on the first instance of lateness. All other businesses should receive a surcharge liability notice (SLN) when they enter the surcharge system. If a
business repeatedly files VAT returns and/or pays VAT late the SLNs will continue
to arrive and the penalties will mount up. These start at the higher of £400 and
2% of the late-paid VAT and increase each time an SLN is issued until they reach
15% of the late-paid VAT. The penalty applies even if the VAT is paid just one day
late.

If you do not receive an SLN you may not be aware that you are in the surcharge system. If you receive a VAT penalty out of the blue and you do not remember receiving an SLN, be sure to appeal against that penalty or we can do that for you. A penalty issued without an SLN is invalid. HMRC do not always record exactly which address each SLN is sent to nor the date on which it is issued. Any review of your appeal against the VAT penalty should require HMRC to produce evidence of when the SLN was issued and the address to which it was sent.

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