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Europe general VAT
United Kingdom

Financial Penalties When Accounting for VAT. Most Frequent Causes

VAT reporting is a process that requires companies or their accountants to provide the tax authorities with accurate data on time. Whenever business owners skip a deadline or provide inaccurate information in their VAT returns, they become subject to penalties. 1stopVAT team has collected some of the most frequent VAT reporting infringements that can warn and prevent business owners from getting into a difficult situation with the tax authorities.

Late registration

Companies selling in the EU, the UK or in other countries where the sales tax applies, must register for VAT as soon as their last 12 months turnover exceed the VAT threshold. Breach of VAT threshold, which happens when the company does not register for VAT after its turnover hits the threshold is held to be a VAT infringement and can result in penalties.

First of all, companies that have registered for VAT late are still due to pay the VAT that they would have collected from customers from the day when the turnover exceeded the VAT threshold.

In the UK, companies can be penalized by 5%, 10% or 15% of the VAT that would have been paid.  The penalty depends on the length of the period from the required registration date until HMRC finds out about the skipped deadline. Companies are allowed to appeal if they have a reasonable excuse for missing the registration deadline or think that the penalty is too high.

Missing VAT deadlines for returns and payments

In the UK, companies must fill VAT returns one month and seven days after a tax period ends. The latest VAT payment dates are the same as the deadlines for submitting VAT returns. In case of missing one of these milestones, the penalties are also the same and include interest on the payment from the due date until it was made.

The size of penalties for missing a VAT deadline varies and depends on whether a company has defaulted before. After submitting a late payment, a company is put on a probation period for 12 months with more interest to be paid for any payments missed in the meantime.

  • When is VAT due to your business?

The easiest way to check the VAT payment dates is by entering the HMRC Make Tax Digital for VAT profile where you usually submit the VAT returns. In the dashboard, you will see the VAT deadlines, outstanding payments and other important tax-related information.

Inaccurate returns

Another misdemeanour that should be avoided is errors in the returns or a failure to notify the tax authorities about changes in the company credentials or any other information essential for record-keeping.

Faulty returns that are viewed as an innocent mistake may go without a penalty. However, when the penalty is applied, it is calculated as potential lost revenue for HMRC. The penalties vary in most cases and depend on the size and kind of the error.

Companies paying VAT are obliged to keep records of past transactions and returns for six years. Failure to do that or a deliberate eradication of these records are also penalized, with fines from £500 to £3,000.

Failure to notify the HMRC

All penalties related to VAT accounting are aimed at encouraging companies to provide transparent and correct information about their business, fighting tax evasion and other wrongdoings. To operate smoothly, HMRC and other tax authorities in other countries are collecting company details. Whenever the business credentials or partnership’s information changes, companies paying VAT are required to notify the HMRC within 30 days. Companies deliberately avoiding to declare changes in details are also subject to financial penalties after 30 days.