When can I be penalised for paying my VAT on time?

So, when can you be penalised for paying your VAT on time? The answer is when HMRC use the funds for something else and don’t tell you.

I’m a recent case before the Upper Tribunal, Swanfield and 3 associated companies were appealing the imposition of default surcharges on a period when the payment for a VAT return had been made on time, or so they thought.

What had happened was that a payment for a current return was made before the due date.  Instead of this payment being allocated to the current return, HMRC used it to clear historic debts.  Consequently, the current return was subject to a default surcharge at the maximum level.

In the absence of an explicit instruction, HMRC can allocate payments as they see fit irrespective of the impact this might have on the imposition of a default surcharge or any other penalty.

The moral of the story is never assume HMRC will do the obvious.Unfortunately, it is another situation where the responsibility lies with the taxpayer to tell them what to do.

As it happens a client was in a similar position only the other week which we were able to resolve, but not without a struggle and a lot of unnecessary aggravation for the client.


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