Default surcharge (VAT Notice 700/50)

Find out when HMRC apply a default surcharge, how it works and how to avoid a VAT surcharge.


This notice cancels and replaces Notice 700/50 (September 2016).

1. Overview

1.1 What this notice is about

Default surcharge is a civil penalty to encourage businesses to submit their VAT Returns and pay the tax due on time.

This notice explains:

  • how to avoid a surcharge
  • how default surcharge works
  • when we apply a default surcharge
  • what to do if you think you’ve a reasonable excuse for submitting your VAT Return or payment late

You can find further information about VAT Returns and payments of tax in the VAT guide (Notice 700).

1.2 The law covered by this notice

The principal legislative framework for this notice is contained in the VAT Act 1994 section:

  • 59 - The default surcharge
  • 59A - Default surcharge: payments on account (POA)
  • 59B - Relationship between sections 59 and 59A
  • 71 - Construction of sections 59 to 70 (exclusions from reasonable excuse)
  • 76 - Assessing for surcharge
  • 77 - Time limits for assessing for surcharge
  • 83 - Appeals against surcharges

2. What default means

2.1 What we mean by the term default

VAT-registered businesses are required by law to submit their return and make sure that payment of the VAT due has cleared to HMRC’s bank account by the due date. The due date is shown on your VAT Return and is normally 1 calendar month after the end of the accounting period covered by the return. If you submit online returns the due date for your return is shown on screen. You’ll be in default if by the due date:

  • we have not received your VAT Return, this applies even if your return is ‘nil’ or shows a repayment due from us
  • full payment for the VAT shown as due on your return has not cleared to our account

2.2 Payments on Account (POA)

If you’re required to make POA you must pay them and the balance due with the VAT Return by electronic transfer direct to our bank account. The due dates for POA are the last working day of the second and third month of every quarterly accounting period. The due date for the balancing payment is the date shown on your VAT Return. You must make sure that your payments are cleared to our bank by these dates or you’ll be in default.

You can find more information about POA in Notice 700/60: payments on account.

3. How to avoid a default

You must make sure that by the due date:

  • you submit your return
  • any payment due on your return clears to HMRC’s bank account

Your payment will be counted as received by HMRC when it clears to our account, not when it’s received in one of our offices.

See Pay your VAT bill for more information. Whichever payment method you chose, you must allow enough time for payment to clear our bank account by the due date.

If you cannot pay the VAT you owe by the due date or are having difficulties, contact the Business Payment Support Service.

For optional accounting schemes for businesses with turnover below a certain limit, see the VAT Annual Accounting Scheme and VAT Cash Accounting Scheme.

4. How the default surcharge system works

4.1 If you default

Each time you default we’ll send you either a:

  • Surcharge Liability Notice
  • Surcharge Liability Notice Extension

These will be issued at the end of the quarterly accounting period, including if you make payments on account, and will warn you that if you default in respect of an accounting period ending within a specified period (the surcharge period) you may have to pay a surcharge.

The surcharge period begins on the date of the notice and ends 12 months from the end of the latest period in default.

If you default during a surcharge period, and there’s VAT outstanding for the tax period in default, we’ll charge you a default surcharge. We’ll send a Surcharge Liability Notice Extension which will extend the surcharge period. We’ll also send a surcharge assessment if a surcharge is due.

4.2 Special arrangements for small businesses

Special arrangements are in place if your taxable turnover is £150,000 or less to help when you first have difficulties paying your VAT on time. We’ll send you a letter offering help and support rather than a Surcharge Liability Notice the first time you default. This will help you sort out any short-term difficulties before formally entering the default surcharge system. If you default again within the following 12 months we’ll issue you with a Surcharge Liability Notice.

4.3 How we work out a surcharge

The surcharge is calculated as a percentage of the VAT that’s unpaid at the due date.

If you do not send in your VAT Return we’ll assess the amount you owe and the surcharge will be calculated as a percentage of that amount.

For the first late payment during a surcharge period the surcharge will be 2% of the VAT outstanding at the due date.

The rate of surcharge will then increase progressively to 5%, 10% and 15% for further payment defaults in a surcharge period.

We’ll normally recalculate a surcharge assessment if the amount on which the surcharge is based changes.

4.4 How we calculate surcharge on POA

If you’re required to make POA we’ll look back at each quarter to see if either of the 2 POA or the balance due with the VAT Return was paid late. All late payments for each accounting period will be added together and the surcharge based on the total amount paid late. The value of the default will not exceed the amount shown as due on your return. If either of the payments are late, but the return shows a nil or repayment amount, a liability to surcharge will not arise. But we’ll issue a Surcharge Liability Notice, extending any surcharge period, but there will be no increase in the rate of surcharge.

Defaults are not affected by movements into or out of the POA scheme.

4.5 The minimum surcharge

There’s a minimum of £30 for surcharges calculated at the 10% or 15% rates.

We do not issue a surcharge at the 2% and 5% rates if we calculated it to be less than £400.

We calculate a surcharge on the amount of VAT not paid on time. You may be able to reduce the size of any surcharge or avoid a surcharge altogether. Do this by paying as much as you can by the due date.

5. If you default within a surcharge period

5.1 Circumstances when we will not charge a surcharge

There’s no liability to surcharge if you:

  • submit a nil or repayment return late
  • pay the VAT due on time but submit your return late

We will not issue a surcharge in these circumstances because there’s no late payment involved. If you defaulted previously we’ll issue you with a Surcharge Liability Notice Extension extending the surcharge period because the return is late, but we will not increase the rate of surcharge.

You’ll only enter the surcharge system if you pay late.

We will not issue a surcharge at the rates of 2% or 5% if the surcharge is for less than £400 but we’ll:

  • issue you with a Surcharge Liability Notice Extension extending the surcharge period
  • increase the rate of surcharge if you default again within the surcharge period

Your liability to surcharge will expire if we receive all your returns and payments for tax periods ending on or before the end of the surcharge liability period on time.

6. Reasonable excuse

6.1 What we mean by reasonable excuse

If you have a reasonable excuse for failing to pay on time, and you remedy this failure without unreasonable delay after the excuse ends, you will not be liable to a surcharge.

There’s no statutory definition of reasonable excuse and it will depend on the particular circumstances of your case. A reasonable excuse is something that stopped you from meeting a tax obligation on time which you took reasonable care to meet. The decision on whether a reasonable excuse exists depends upon the particular circumstances in which the failure occurred.

7. Reviews and appeals

7.1 If you disagree with the surcharge

If you disagree with our decision that you are liable to surcharge or how the amount of surcharge has been calculated, you can:

  • ask us to review your case
  • have your case heard by an independent tax tribunal

If you ask us to review your case, you should write to us within 30 days of the date the Surcharge Liability Notice Extension was sent to you, giving the reasons why you disagree with our decision. You do not have to write to us yourself. An accountant or adviser can do this for you provided you have let us know that you authorise them to act on your behalf.

For example, you may ask us to review the default if you think that:

  • you have a reasonable excuse for the default, see section 6
  • we’ve applied the wrong rate of surcharge
  • we’ve used the wrong amount of VAT when calculating the surcharge
  • there are exceptional circumstances which mean the default should be removed

You’ll still be able to appeal to the tribunal if you disagree with the outcome of our review.

Contact details

For information about appeals and reviews and how to authorise an accountant or adviser to act on your behalf, see Disagree with a tax decision.

You can request a review of our decision that you’re liable to a surcharge by writing to:

Dept 200 VAT (DS Reviews & Litigation)
NE98 1ZZ

You can also appeal against our decision to the First-tier Tribunal (Tax Chamber).

If you need general help with this notice or have another VAT question you should phone our VAT helpline or make a VAT enquiry online.

Your rights and obligations

Read Your Charter to find out what you can expect from HMRC and what we expect from you.

Help us improve this notice

If you have any feedback about this notice email:

Or write to:

Central Policy (TAA)
8th Floor
Imperial Court
2-24 Exchange Street East
L2 3PQ

You’ll need to include the full title of this notice. Do not include any personal or financial information like your VAT number.

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Published 1 September 2017
Last updated 13 August 2019 + show all updates
  1. The address to request a review of a decision has been updated.

  2. First published.