As a VAT registered business, you have to do two things to avoid being charged a VAT penalty: pay your VAT on time and submit your VAT return on time.
If you fail on either of those requirements twice in twelve months, you are put on the VAT equivalent of the naughty step, the surcharge. Businesses with turnover of£ 150,000 or more don’t get that one-time free pass as they enter the surcharge period after just one late payment or late return filing.
The surcharge period is a serious lobster-pot, as once you are in you can’t get out until you demonstrate a full twelve months of good behaviour. Any late payment or late filing within that twelve months means the surcharge period is extended for a further twelve months.
What’s more, the penalties start racking up. The first missed deadline within the surcharge period generates a penalty of 2% of the late VAT, the second a 5% penalty, then 10%, and thereafter a painful 15% of the late-paid VAT. Even one day beyond the deadline means it’s late. However, it is easy to overlook a small penalty charge,
as (if your annual turnover is under £150,000) you won’t receive a penalty bill for less than £400 until you reach the 10% penalty level.
The lesson to learn is: pay your VAT on time, every time.
