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HMRC internal manual

Compliance Handbook

Charging penalties: interaction between penalties: details and examples: an under assessment penalty and VAT default surcharge are payable

If a late return attracts a default surcharge, a penalty for failure to notify an under assessment within 30 days must be reduced by the amount of a default surcharge.

Guidance on making adjustments to penalties in the NPPS is at CH407720.


Bill is in the default surcharge regime at 10%. He fails to send in his return and payment by the due date. A central assessment is issued showing £1,800 with a default surcharge of £180.

A visit is arranged. This prompts Bill to complete and submit the missing return. The return shows VAT due of £20,000.

The VAT Mainframe charges a 10% default surcharge of £1,820.

A penalty for the failure to notify the under assessment within 30 days is also payable but must be reduced by the amount of the default surcharge.

You must make sure that the penalty has become final, for example the appeal period has ended or an appeal has been concluded, before you reduce the penalty by the amount of the default surcharge.

If a full reduction for disclosure is given, the penalty will be 15% less the surcharge.

Under assessment penalty £18,200 x 15% = £2,730
Under assessment surcharge £18,200 x 10% = £1,820
Adjusted under assessment penalty £910