Tx notes fa22 Final

June 2023 to March 2024 exams
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7. The Default Surcharge 
A new penalty system is being introduced over a period of years for the late filing of VAT returns and 
late payment of tax. 
(a)
A default occurs if a VAT return is not submitted on time or a payment of VAT is made late.
(b)
On the first default, HMRC serve a surcharge liability notice on the trader. The notice specifies 
a surcharge period, starting on the date of the notice and ending on the twelve-month 
anniversary of the end of the VAT period to which the default relates.
(c)
If the trader has a further default during the surcharge period there are two consequences:
‣
the surcharge period is extended to the twelve-month anniversary of the VAT period to 
which the new default relates
‣
if the default involves the late payment of VAT, then the trader will be subject to a 
surcharge penalty.
(d)
There is therefore no surcharge penalty where a late VAT return involves the repayment of VAT.
(e)
The rate of surcharge penalty depends on the number of defaults in the surcharge period:
Surcharge penalties at the rates of 2% and 5% are not made for amounts less than £400.
Where the rate of surcharge is 10% or 15%, the minimum surcharge is £30.
(f)
In order to escape from the surcharge liability period, a trader must submit four consecutive 
quarterly VAT returns on time and also pay any VAT due on time.
 
Example 6 
Bluebell Ltd has submitted its VAT returns as follows:
Bluebell Ltd paid the VAT due on the same date that the VAT returns were submitted. 
State the consequences for Bluebell Ltd of the late submission of the VAT returns.


Default in the surcharge period 
Surcharge as a percentage of 
the VAT unpaid at the due date 
First 
2% 
Second 
5% 
Third 
10% 
Fourth or more
15% 
Quarter ended
VAT paid (£)
Date submitted
30 September 2021
3,100
5 December 2021
31 December 2021
21,300
2 March 2022
31 March 2022
4,300
25 April 2022
30 June 2022
7,600
24 July 2022
30 September 2022
1,900
25 October 2022
31 December 2022
3,200
27 January 2023
31 March 2023
6,900
16 May 2023

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