This fact sheet covers England & Wales. You will need different advice if you live in Scotland.
This fact sheet gives information about how to deal with Value Added Tax (VAT) debts.
Use this fact sheet to:
- understand when you must be registered for VAT;
- understand how Making Tax Digital affects you;
- find out when HM Revenue & Customs (HMRC) can add penalties and interest to a VAT debt;
- find out what type of action HMRC can take to collect a VAT debt; and
- how to ask HMRC for an arrangement to pay a VAT debt.
This fact sheet gives information for businesses that:
- are based in the UK;
- only trade within the UK; and
- plan to continue trading.
The advice applies to sole traders, partnerships and limited companies unless it says otherwise.
If you are unsure what your trading status is or you have decided to stop trading, contact us for advice.
What is VAT?
VAT is a type of tax that VAT registered businesses must charge on most goods and services they sell. VAT is charged on sales made to other businesses and to members of the public.
VAT registered businesses:
- collect VAT from their customers for HMRC; and
- can claim back from HMRC the VAT they have paid on their business expenses.
VAT registered businesses must:
- issue VAT invoices to their customers that show the amount of VAT charged;
- keep VAT records; and
- provide VAT returns to HMRC.
Extra rules for the construction industry
Some businesses have to follow extra rules for collecting and paying VAT. If you are VAT registered and work under the Construction Industry Scheme (CIS), you may be affected by the domestic VAT reverse charge. For more information about the domestic VAT reverse charge and how it may affect you, see GOV.UK.
Do I have to register for VAT?
Only businesses that are VAT registered can charge VAT.
In most cases, you must register for VAT with HMRC if your business:
- had a taxable turnover of more than £85,000 during the last 12 months; or
- expects its taxable turnover to go over £85,000 in the next 30 days.
If your business sells mainly, or only, zero-rated items, you can ask HMRC for an exemption from registering for VAT. For more information, go to www.gov.uk and search for ‘Exemption and partial exemption from VAT’.
You can choose whether to register for VAT, or not, if your business:
- had a taxable turnover of £85,000 or less during the last 12 months; or
- expects its taxable turnover to be £85,000 or less in the next 30 days.
You cannot register for VAT if your business only sells VAT exempt goods and services. For more information on exempt goods and services and VAT rates, go to www.gov.uk and search for ‘VAT rates on different goods and services’.
This is the total value of everything that your business has sold that is not VAT exempt.
Make sure that you look at your taxable turnover every month. Also remember to check whether the total turnover for the last consecutive 12 month period adds up to more than £85,000 (the VAT registration threshold). This is important because if you do not register for VAT, but should have done so, HMRC can charge penalties. This will increase the amount you need to pay HMRC and could create financial difficulties for your business. For more information, see the Penalties section.
Should I voluntarily register for VAT?
Some businesses choose to become VAT registered, even when they do not have to be. Usually, this is because VAT registration allows a business to claim back the VAT it is charged by other registered businesses from HMRC.
If you are thinking about voluntarily registering for VAT, get specialist advice first.
- Check with a qualified accountant or bookkeeper whether it makes financial sense for your business to register for VAT.
- Check which VAT accounting scheme is best for your business. HMRC provides a range of accounting schemes, such as ‘Standard VAT accounting’, ‘VAT retail schemes’ and the ‘VAT Flat Rate Scheme’. Each scheme has its own rules. The rules will affect which types of business can use the scheme, how often VAT returns need to be sent to HMRC and how the amount of VAT owed to HMRC is worked out. For more information on VAT accounting schemes, go to www.gov.uk or contact a qualified accountant or bookkeeper.
- Consider how charging customers VAT will affect your future sales. If your customers are mainly members of the public, will increasing the price they pay for your goods and services make your business less competitive? On the other hand, some VAT registered businesses prefer to deal with other VAT registered businesses. They may also think that your business is a larger concern than it is by assuming it has a turnover above the VAT threshold.
- Consider how much extra it will cost your business to create and submit the VAT returns.
VAT registration deadlines
You usually register for VAT online using the Government Gateway at www.gov.uk. The time allowed for you to register for VAT will depend upon the reason why you need to register.
If your business had a taxable turnover of more than £85,000 during the last 12 months
You must register for VAT within 30 days of the end of the month in which your last 12 months takings first added up to more than £85,000.
For example, if your last 12 months takings first reached more than £85,000 on the 10th August 2020, you must register with HMRC for VAT by 30th September 2020.
If your business expects its taxable turnover to go over £85,000 in the next 30-day period
You must register within 30 days of realising that your taxable turnover for the next 30-day period is expected to go over £85,000.
For example, if you become aware that this will happen on the 1st August 2020, you must register with HMRC for VAT by the 30th August 2020.
Making Tax Digital
Under Making Tax Digital rules, you must:
- keep digital records: and
- use HMRC compatible software to prepare and submit your VAT returns.
Making Tax Digital was first introduced for VAT periods that started on or after 1 April 2019 for VAT registered businesses with a taxable turnover above the VAT threshold.
The rules changed from 1 April 2022. Unless exempt from having to do so, all VAT registered businesses had to sign up for Making Tax Digital for VAT periods that started on or after 1 April 2022. This included VAT registered businesses with a taxable turnover below the VAT threshold.
For more information about the digital information you must keep, see VAT Notice 700/22: Making Tax Digital for VAT.
For more information about exemptions, see the Exemptions to Making Tax Digital section of this fact sheet.
HMRC does not provide the software that you need to use for Making Tax Digital. However, it has produced a list of software that is compatible to use with their systems. Go to www.gov.uk and search for ‘Find software that's compatible with Making Tax Digital for VAT’.
When choosing a compatible software package, consider:
- whether it best suits the needs of your business;
- how much it will cost; and
- what happens after any free or discounted introduction period ends.
Exemptions to Making Tax Digital
In some circumstance you may be exempt from having to follow the Making Tax Digital rules. For example, it may not be reasonably practicable for you to use digital tools to keep your business records or submit your VAT returns because of age, disability, remoteness of location or for any other reason.
To apply for an exemption from Making Tax Digital, contact VAT general enquires and fully explain your circumstances. You can do this by post or phone. See Useful contacts at the end of this fact sheet
If you were already exempt from filing VAT returns online, you did not need to sign up for Making Tax Digital or apply for an exemption.
VAT return and payment deadlines
HMRC will tell you when your VAT accounting period starts.
Usually, you need to:
- submit a VAT return to HMRC every three months;
- complete and submit your return to HMRC within one calendar month plus seven days of the end of the VAT period; and
- pay any VAT owed within one calendar month plus seven days of the end of the VAT period.
Always check the rules for the accounting scheme that you are using.
What if I miss the deadline for submitting a VAT return or paying the VAT?
VAT notice of assessment of tax
If you do not submit your VAT return within the time given, HMRC will work out how much VAT they think you owe and send you a ‘VAT notice of assessment of tax’.
If you receive a notice, it is important to complete and submit the outstanding VAT return to HMRC as soon as you can and, if possible, within 30 days. This is because HMRC can add an extra penalty of up to 30% of an assessment if:
- their assessment is lower than the amount of VAT actually owed; and
- you do not tell them this within 30 days.
This type of penalty is in addition to the those explained in the following sections of this fact sheet.
Penalties for late submission
HMRC has introduced a penalty point-based system for late submissions. It applies to VAT returns made for accounting periods that started from 1 January 2023 onwards. Under the new system, HMRC can give you one penalty point for each VAT return that you submit late. When you reach a certain level of points (known as your 'penalty threshold'), HMRC can charge you a financial penalty. This will increase what you owe HMRC.
While you remain at your penalty threshold level, HMRC can also charge you further financial penalties for any late submissions that follow. For more information, see the Penalties section.
If you have missed the deadline for submitting your VAT return, get your return up to date as soon as you can. Also try to submit your future returns on time. This will help to limit the financial penalties that HMRC can add to the debt.
Penalties for late payment
HMRC has also introduced a new penalty system for the late payment of VAT. It applies to VAT debt for accounting periods that started from 1 January 2023 onwards. Under the new system, HMRC can start adding late payment penalties once your VAT payment is 15 days late. For more information, see the Penalties section.
If you have missed the deadline for paying VAT and can afford to pay the amount owed, contact HMRC straightaway to make the payment. Further delays may cause your debt to increase.
If you do not have the money available to pay your VAT debt in full, ask HMRC for a time to pay arrangement. For more information, see the Negotiating a time to pay arrangement section.
Late payment interest
If you pay your VAT late, HMRC can add late payment interest to the amount you owe. Late payment interest is currently charged at 7.75%.
Late payment interest is payable even if you have a time to pay arrangement and are keeping to the arrangement.
Change how often VAT returns must be submitted
HMRC can change how often you need to submit a VAT return to them if they think that it will help to protect future VAT payments. For example, HMRC could alter your return period from quarterly to monthly.
Who is liable for a VAT debt?
Liability for VAT depends on your business status.
Sole traders are personally liable for VAT.
Partners in a business partnership usually have joint liability for VAT. This means that all partners are personally liable for 100% of the VAT owed by the business partnership until it is paid.
Directors of a limited company are not personally liable for VAT generated by the limited company’s trading. This is because a limited company is a separate legal entity to its directors. HMRC should not ask you, as a director of a limited company, to use your personal funds or goods to pay the limited company‘s VAT.
However, in certain circumstances, a director of a limited company can be asked to pay some, or all, of a company’s penalties for ‘a failure to notify’. This can include, for example, failing to tell HMRC that your business exceeds the VAT threshold.
Once your business misses a VAT payment deadline, HMRC will contact you to ask for payment. HMRC may do this in writing, by phone or ask a debt collection agency to collect the debt for them. If you do not have the funds available to pay the VAT debt, you will need to ask HMRC or the debt collection agency for an affordable payment arrangement. For more information, see the Negotiating a time to pay arrangement section.
If you do not have a payment arrangement in place or do not keep up to date with the agreed payments, HMRC will usually take further action. VAT is a priority debt because HMRC can take the following enforcement action.
- Use HMRC officers to act as bailiffs (also called ‘enforcement agents’) to try to take goods.
- Take money directly from a bank account if the business owes at least £1,000. This is known as ‘direct deductions from bank accounts’.
- Take action in the County Court.
- Ask for security against existing and future VAT payments.
- Use the magistrates’ court to recover the debt.
- Ask the court to make you bankrupt if you are personally liable for the debt.
- Ask the court to wind up your limited company if the limited company is liable for the debt.
For more information, see the VAT debt enforcement section.
Negotiating a time to pay arrangement
If your business has already missed a VAT payment or will have problems paying the next one, contact HMRC as soon as possible. Explain your circumstances and ask HMRC to let you pay the debt by instalments. This is called a ‘time to pay arrangement’.
If HMRC agrees to a time to pay arrangement and you keep to the agreement, HMRC will stop adding further late payment penalties. This will apply from the date you asked HMRC for time to pay.
HMRC does not have to give a business time to pay and will take your previous VAT payment and filing history into account. You will need to submit any outstanding VAT returns and HMRC may ask you questions about your business. HMRC will want to check that your business is viable and that you will not get further behind with your VAT payments in the future.
Before you make an offer of payment to HMRC, check that the amount you are offering is affordable. Fill in a budget to work out how much you can afford to pay and how long it will take to repay the debt. Business Debtline has a range of budgets that will help you do this. Go to www.businessdebtline.org and choose the budget that fits your trading status.
VAT registered businesses collect VAT from their customers on behalf of HMRC. Because of this, HMRC usually expects any outstanding VAT debt to be paid as soon as possible. Sometimes, this can make negotiating a time to pay arrangement difficult, so consider the following.
Let HMRC know that you have contacted Business Debtline. This will help to show that you are actively dealing with your situation.
If you are in a vulnerable situation, for example, you are dealing with mental health issues or are elderly or sick, tell HMRC. HMRC should look at your circumstances and may be more flexible in recovering what is owed.
If HMRC does not agree to an affordable arrangement, start paying what you can. This will show HMRC that you are trying to repay the debt and can maintain the payments you have offered. It may also help to show HMRC that your business is viable. Ask HMRC to reconsider your offer.
Don’t be tempted to agree to more than you can afford to pay. If you do so and then break the arrangement, it will be more difficult to negotiate a new time to pay arrangement in the future.
Time to pay online for VAT
If you do not have any other payment plans or debts with HMRC, you may be able to set up an online time to pay arrangement through your Government Gateway account. To do this, you need to:
- have filed your latest return;
- owe £20,000 or less;
- be within 28 days of the payment deadline; and
- plan to pay your debt off within the next 12 months or less.
If a debt collection agency asking you to pay
HMRC may pass your debt to a debt collection agency. A debt collection agency is a private company that can ask you to pay what you owe. They are not bailiffs.
A debt collection agency that is acting for HMRC will only contact you by letter or phone (including text messages). They should not visit your home or place of work.
If HMRC uses a debt collector to ask you to pay, negotiate with the debt collector in the same way. HMRC will have told the debt collector what type of payment arrangements they can agree to.
VAT debt enforcement
If you do not have a time to pay arrangement or fall behind with the agreed payments, HMRC can take further action. By law, HMRC must send you a written demand before they start enforcement action.
In the following sections, we explain the range of enforcement action that HMRC can take in more detail. Action should only be taken against a person or company that is liable for the VAT debt. Remember, if you are a director of a limited company, it is the limited company and not you personally that is liable for the VAT. HMRC can contact you as an officer of the limited company to ask that the VAT is paid. However, they should not ask you or any other organisation, such as a bank, to use your funds or goods to pay the limited company debt.
Different rules can apply for some VAT penalties. For example, in certain circumstances, a director of a limited company can be asked to pay penalties for failing to tell HMRC that their business exceeds the VAT threshold.
HMRC officers acting as bailiffs
Bailiffs are also commonly known as enforcement agents. In this fact sheet we use the term bailiffs.
HMRC does not need a court order to use bailiffs to collect on a VAT debt. This type of action is known as ‘taking control of goods’ and is carried out by HMRC officers.
HMRC should give you seven clear days’ notice if an HMRC officer acting as a bailiff plans to visit you. This is often called the ‘enforcement notice’. ‘Clear days’ do not include Sundays, Christmas Day, Good Friday or bank holidays. If you receive an enforcement notice, contact the HMRC officer as soon as possible to try to make an affordable payment arrangement. The officer’s contact details should be included in the notice.
If an HMRC officer visits, they will usually try to gain peaceful entry to your home or business premises. They want to see whether there are any items that they can sell to pay towards the VAT debt. You do not have to let the HMRC officer in, although it may be more difficult to stop them entering your business premises if it is open to the public.
An HMRC officer can clamp and potentially remove a vehicle if it is parked on your own driveway or on a public road. However, they cannot remove a vehicle on third party premises (such as, someone else's driveway or a private car park) unless they have a court order allowing them to do this.
If you have received an enforcement notice and are expecting a visit from an HMRC officer, keep your doors locked and park any vehicles away from your home and business premises. Although HMRC officers should not enter through a window, it is also a good idea to keep windows closed.
HMRC can apply to court for a warrant to break in to your home or business premises, but we rarely see this happen. The court would look at whether it was reasonable to allow HMRC to force entry and take into account the size and type of the debt owed.
An HMRC officer may ask you to agree to making a 'virtual' or non-entry controlled goods agreement (CGA) when they initially contact you by telephone or letter, rather than coming to visit your property to take control of goods.
If you are considering whether to agree to making a virtual CGA, contact us for advice.
What if the HMRC officer gains entry?
If an HMRC officer gains entry, they will usually list certain items and ask you to sign a ‘controlled goods agreement’. This agreement allows you to keep using the goods listed, as long as you pay what you have agreed with the HMRC officer. If you do not keep to the agreement, the HMRC officer can return and force entry to remove the goods listed on the controlled goods agreement. They must give you two clear days’ notice if they plan to remove goods.
In some situations, HMRC officers may remove goods straight away or lock them up in a room in your home or business premises. As a last resort, your whole business premises may be locked up.
Unless you make an arrangement to pay with HMRC, goods that are removed can be sold seven clear days later.
An HMRC officer should not list or take the following items.
- Clothing, bedding, furniture and basic household items that are necessary for the basic domestic needs of you and your family (such as a washing machine and refrigerator).
- Items you or someone else is physically using where taking the goods is likely to lead to a breach of the peace. This will normally only apply if the officer wants to remove the item straight away.
- Items belonging to other people, including rented and leased goods.
There are different legal views about whether an officer can take control of goods on hire purchase or conditional sale agreements. If an HMRC officer threatens this, tell them that the goods are on hire purchase and contact us for advice.
HMRC officers can take control of goods that are necessary for you to use in your business.
What if there are no goods to take?
Sometimes, when an HMRC officer enters your home or business premises, they will decide that the goods present are not worth enough to cover the cost of coming with a van to remove and sell them. If this happens, be aware that an HMRC officer could return at a later date to check whether this is still the case. If your situation has changed, they may try to take control of your goods.
An HMRC officer has 12 months from the date of the enforcement notice to take control of goods. However, if you make an arrangement to pay an HMRC officer, and do not pay, the 12 month time period starts running again from the date you missed the payment.
Direct deductions from bank accounts
If you owe HMRC at least £1,000 they can ask your bank if there is any money in your account to pay the VAT debt. HMRC can normally do this 30 days after you have had a letter from them telling you how much you owe. HMRC does not need a court order to do this. However, to make sure that you do know that you owe the debt, HMRC guidance says that you should have received a visit from them first.
HMRC will send a ‘hold notice’, telling you that the bank has frozen money in your account. In most cases the first £5,000 in your account is protected. The bank will only freeze funds above this amount.
HMRC will then send you a ‘deduction notice’, advising you how much they have asked the bank to pay them out of your account. The bank will send this money to HMRC. The bank can also make a charge to your account for carrying out this process.
HMRC can ask for money to be taken from a joint account, but only money that belongs to the person who owes the debt can be taken. HMRC will assume that balances in joint accounts are split equally. For example, if the account is in two names and only one person owes the VAT debt, HMRC will say that 50% of the money in the account can be taken.
If you do not agree that HMRC should make the deduction from your account, for example, because the debt has already been paid, you can object to HMRC. Contact us for advice
HMRC should not ask a bank to take money from your personal account to pay a limited company debt.
County court action
HMRC can ask the County Court to make a county court judgment (CCJ) against you personally if you owe the debt, or against the limited company if the company owes the debt.
A CCJ given against you will be recorded on your personal credit reference file for six years and can affect your ability to get further credit.
A CCJ given against a limited company will be recorded on the limited company’s credit reference file for six years and can affect the company’s ability to get further credit.
If county court action is started, you will get a ‘claim form’. This shows who HMRC are asking to pay the debt and how much is being claimed. If you get court forms, you need to reply within set timescales.
You may agree that the debt is owed, but cannot pay the amount in full (including costs) within the timescale you have been given. If this is the case, complete the ‘admission’ form and make an offer to pay in instalments. The County Court will consider your circumstances and make the final decision about how the debt should be paid back. For more information, see our Replying to a county court claim form fact sheet.
The court is less likely to agree to instalments for a limited company debt because a CCJ suggests that the business is insolvent. If you have received a claim form for a limited company debt, contact us for advice.
If you have received claim forms, but do not agree that you owe all, or part, of the debt, contact us for advice.
Charging orders secure the debt against property owned by the person or limited company named on a CCJ. Charging orders can put the property at risk.
If HMRC applied for a CCJ on or after 1 October 2012 and the court gave the judgment, HMRC can ask the court for a charging order. They can do this even if you are up to date with payments set by the court.
If HMRC applied for a CCJ before 1 October 2012, the rules are different. Contact us for advice.
For more information, see our Charging orders fact sheet.
Missed payments on a CCJ
If you miss payments on a CCJ, HMRC can take other types of enforcement action through the County Court. Action can be taken against the person or limited company named on the CCJ only. It includes:
freezing money in a bank account (this is called a ‘third party debt order’ and is different to direct deductions from bank accounts which HMRC can do without a court order);
using bailiffs to take control of goods (although remember that HMRC can do this without a court order); and
taking regular deductions from your wages if you are working for an employer (this is called an ‘attachment of earnings order’).
If you have missed payments on a CCJ, contact us for advice.
If you do not pay what is ordered on a CCJ, HMRC can ask the court to issue a ‘judgment summons’. This orders you to go to court and explain why you have not paid. You can be sent to prison if you have (or have had) the money to pay the amount shown on the judgment summons and have wilfully neglected or refused to pay as the court ordered.
Although this power exists, it is not currently being used by HMRC.
Magistrates’ court action
In some situations, HMRC can use the magistrates’ court to recover the VAT that you owe as a civil debt. The process is called ‘summary proceedings’.
Although this power exists, it is not currently being used by HMRC.
Security against existing and future VAT
To protect against existing and future VAT payments, HMRC can ask for security if:
- you have a VAT debt; or
- there is a serious risk that you will not make future VAT payments.
Usually, you will receive a warning letter from HMRC. This explains that they may ask for security. HMRC will then send you a ‘notice of requirement’. This tells you:
- how much security you must give (this is usually at least four months’ VAT liability); and
- what type of security is allowed (such as a bond or electronic payment).
HMRC will keep any security that you give for at least 12 months.
As well as asking for security, HMRC will continue to ask for payment of any VAT debt owed. If you do not pay the VAT debt, HMRC can use any security given to pay towards it. If they do this, HMRC will then ask for further security.
It is a criminal offence not to comply with an HMRC request for security and to continue to trade. If you receive a notice of requirement, contact us for advice.
If HMRC has been unable to recover a VAT debt by other methods, they may pass the debt to their Enforcement and Insolvency Service. If you personally owe at least £5,000, HMRC may ask the court to make you bankrupt. Bankruptcy is a court order that allows an ‘official receiver’ to sell valuable things that you own (your assets) to help pay your debts.
Before asking the court to make you bankrupt, HMRC usually sends you a ‘statutory demand’. This is a legal document which shows how much HMRC claims that you owe. For more information, see our Statutory demands fact sheet.
Even at this stage, you can still try to negotiate a payment arrangement with HMRC. If you have a lump sum of money available, you could try to offer this to HMRC together with affordable monthly instalments. If you are ill and can only make very small payments, or none at all, explain this to HMRC.
Security against you home
If HMRC refuses your offer and you own your home, you could offer to secure the debt on your property. If the debt is secured against your property, this would mean that the debt will be paid when the property is sold. This does put your property at risk, but it may help to persuade HMRC not to make you bankrupt.
If you are threatened with bankruptcy or are considering securing the debt against your home, contact us for advice.
Winding up proceedings
If your limited company owes more than £750 in VAT, HMRC could consider asking the court to wind it up. Winding up (also called liquidation) is a court order that allows a ‘liquidator’ to collect and sell the limited company’s assets to help to pay its creditors. The limited company will be closed.
HMRC usually sends the limited company a ‘statutory demand’ before asking the court to wind it up. This is a legal document which shows how much HMRC claims that the company owes. For more information (including temporary coronavirus protections), see our Limited companies fact sheet.
If HMRC threatens to wind up your limited company, contact us for advice.
VAT relief on bad debts
You may be able to claim VAT back for a bad debt in your VAT return if:
- you have already raised the invoice;
- you have already paid VAT to HMRC for the invoice; and
- the customer hasn’t paid the amount owed for at least six months.
You usually need to make the claim within four years and six months of the later of either:
- the date of the supply; or
- the date when the amount became due and payable.
To claim relief on bad debts, you must also meet several other conditions. For example, you:
- have ‘written off’ the debt and are treating it as a bad debt;
- have not sold the debt; and
- have not charged more than the normal price for the goods or services.
You will have to pay the VAT back to HMRC if the customer pays you after you have claimed relief from HMRC.
For more information, go to www.gov.uk and search for ‘Relief from VAT on bad debts (VAT Notice 700/18)’.
Deregistering for VAT
If your business’ taxable turnover falls below £83,000 (the ‘deregistration threshold’), you can ask HMRC to cancel your VAT registration. You will need to tell HMRC what date you want to cancel your VAT registration from. This cannot be for a date that has already passed.
You can apply to deregister online using your Government Gateway account or by post using Form 7. For a copy of Form 7, go to www.gov.uk and search for ‘Cancel your VAT registration’.
If HMRC agrees to cancel your VAT registration, they will send you a notice confirming your deregistration date. You will need to stop charging VAT from the deregistration date and complete a final VAT return.
HMRC may not agree to cancel your registration. If this happens, you can ask for the decision to be reviewed. You may also be able to appeal HMRC’s decision.
If you are thinking about voluntarily deregistering for VAT, speak to your accountant or bookkeeper to make sure that it is the right decision for your business.
Complaining to HMRC
HMRC should provide you with a service that is fair, accurate and based on mutual respect. This is explained in their service charter, called the ‘HMRC Charter'.
If you are unhappy with the way you have been dealt with by HMRC, you can make a complaint to them by phone, online or in writing. As explained in their charter, HMRC should deal with your complaint fairly and as quickly as they can.
To complain, you usually need to contact the HMRC department that has been dealing with your case and explain the reason for your complaint. HMRC should investigate your issue thoroughly.
If you are unhappy with HMRC’s response to your complaint, you can ask for your case to be looked at again by another member of staff. They will review your complaint and send you a ‘final response’.
If you do not agree with the final response, you can contact the Adjudicator’s Office and ask them to look at your case. See Useful contacts at the end of this fact sheet. The Adjudicator’s Office is not part of HMRC and acts as a free impartial referee in unresolved complaints.
Finally, after going through all these steps, you can ask your Member of Parliament to refer your case to the Parliamentary and Health Service Ombudsman (PHSO). The PHSO is the final stage for unresolved complaints. For contact details, see Useful contacts at the end of this fact sheet.
For more information, go to www.gov.uk and search for ‘Complain about HMRC’.
Remember to keep up to date with returns and payments. You will still need to submit your VAT returns and make payments on time even while HMRC is looking at your complaint.
Appealing a VAT decision
If you disagree with a VAT decision or calculation, you may be able to submit an appeal. Time limits apply, so it is important that you act straightaway. You should also get specialist advice to help you explain why you think the decision or calculation is wrong. Speak to your accountant or bookkeeper.
Adjudicator’s Office Phone: 0300 057 1111 www.gov.uk and search for ‘Adjudicator’s Office’
Parliamentary and Health Service Ombudsman Phone: 0345 015 4033 www.ombudsman.org.uk
VAT: general enquiries Phone: 0300 200 3700 HM Revenue and Customs - VAT Written Enquiries Team, Portcullis House, 21 India Street, Glasgow G2 4PZ
Late submission penalties
Once you reach your late submission penalty threshold, HMRC will give you:
- a financial penalty of £200; and
- a further £200 financial penalty for each late submission that follows while you are at your penalty points threshold.
Your late submission penalty threshold will depend on your submission frequency for your returns. For example, if you should submit your VAT returns on a quarterly basis, you will reach your late submission penalty threshold when you get four penalty points.
Submission frequency Penalty threshold Annually 2 Quarterly 4 Monthly 5
Late payment penalties
Late payment penalties can include 'First charge' and 'Second charge' penalties.
First charge penalties
Timeline for charges Amount of penalty charged Up to 15 days overdue No charge will be made if you either pay the VAT you owe in full before the end of day 15 or agree a TTP arrangement that was proposed before the end of day 15. Between 16 and 30 days overdue If by day 16 the VAT remains unpaid and you have not already made a TTP arrangement (or already proposed a TTP that is eventually agreed), a penalty of 2% of the VAT owed at day 15 will be added. 31 days or more overdue If the VAT remains unpaid and you have not already made a TTP arrangement (or already proposed a TTP that is eventually agreed) by day 30, a penalty of 2% of the VAT owed at day 30 will be added. This is in addition to the penalty of 2% of the VAT owed at day 15.
As the late payment penalty system for VAT recently changed, HMRC has said that it will not charge a first late payment penalty until after 31 December 2023 if you pay in full or agree a time to pay arrangement within 30 days of your payment due date.
Second charge penalty
Column 1 Column 2 31 days or more overdue A further daily rate penalty (calculated at 4% per year) will be added from day 31 while the VAT remains unpaid.
HMRC can charge penalties of:
- up to 100% of any tax under-stated or over-claimed if you send a return that contains a careless or deliberate inaccuracy;
- up to 30% of an assessment if HMRC sends you one that’s too low and you do not tell them it’s wrong within 30 days; and
- up to £400 if you submit a paper VAT Return, unless HMRC has told you you’re exempt from submitting your return online.
Penalties for a failure to notify
HMRC can charge penalties for a failure to notify. This includes, failing to tell HMRC that your business exceeds the VAT threshold. The amount of penalty that HMRC can charge depends upon several factors. HMRC will consider:
- whether you deliberately chose not to notify them;
- whether you contacted them before, or after, they were aware of the issue; and
- in some cases, how long the delay has been.
For more information, including what you can do to try and reduce any penalties that HMRC may have charged you, go to www.gov.uk and search for ‘Compliance checks: penalties for failure to notify’.
Type of behaviour Unprompted or prompted Penalty range Non-deliberate Unprompted - within 12 months of tax being due 0% to 30% Unprompted - 12 months or more after tax was due 10% to 30% Prompted - within 12 months of tax being due 10% to 30% Prompted - 12 months or more after tax was due 20% to 30% Deliberate Unprompted 20% to 70% Prompted 35% to 70% Deliberate and concealed Unprompted 30% to 100% Prompted 50% to 100%