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HMRC internal manual

VAT Civil Penalties

HM Revenue & Customs
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Default surcharge: calculation and notification of the surcharge: the surcharge process and how to amend a default

Change of legal entity/transfer of a going concern (TOGC)

A Surcharge Liability Notice (SLN) must have been issued to the taxable person before a surcharge can be assessed. Defaults, SLNs and surcharge assessments cannot be transferred from one taxable person to another. The surcharge cycle must be restarted following a change of legal entity or transfer of a going concern.

The following is an example of how this works:

A transfer of a going concern takes place on 1 February 2004. The trader has previously incurred defaults in periods 10/03 and 01/04. A further default arises in 04/04. The record of defaults should read as follows:

Period Default attracts
10/03 SLN only
01/04 Liability to surcharge at 2%
04/04 SLN only

Under-declarations and under assessments

Surcharges should not be re-calculated if the VAT shown on a return is later found to under declare the actual amount due. However, the amount under-declared may be liable to a penalty under Sch 24 FA 2007, see CH80000.

If no return has been submitted and a central assessment has been issued any additional assessment will result in the automatic recalculation of the surcharge.

Traders are notified of a supplementary assessment of surcharge on forms VAT 163 or VAT 163B.


Default surcharges for periods ending after 1 April 1990 are recalculated automatically to take account of over-declarations notified on Officer Assessments and Voluntary Disclosures. No recalculation of surcharge is made in respect of over-declarations relating to periods prior to 1 April 1990.

Traders are notified of reductions in the amount of surcharge on forms VAT 163A and VAT 163C.

Manually recording and amending defaults

There are many events and changes that can occur which make it necessary to review a trader’s surcharge records.

See VCP10554 for details of how to record, amend and delete defaults.