Late filed VAT returns claiming repayments are penalised

It is crazy isn't it. I've copied below an extract from today's issue of our weekly practical tax update. Implicit in the note is something described as lunacy by one of our readers:

"a VAT return due 31 January with tax payable is not late if filed online 6th Feb but is late if filed 1st Feb with a repayment due?"

And he's right.

The logical, reasonable route for HMRC to follow would have been to apply a consistent rule regardless of whether the return shows a liability or a repayment to be due. To penalise traders who are due a refund for filing tax returns earlier than those who have a liability seems quite absurd.

This rule is however the standard HMRC position. "If you submit your return online, you must pay your VAT electronically, so if your return shows net VAT to be paid to HMRC, you get seven extra calendar days to submit your return."

The reason this is more relevant now than normal is that some accountants and traders may have decided to focus on filing personal tax returns online before the 31 January deadline. And in so doing they have held off finalising VAT returns.

Now, to be fair HMRC have made it clear that late filed returns claiming a repayment will not themselves result in a surcharge or penalty. However, HMRC will record the late filed return as a default. And they will issue a surcharge liability notice extension to extend the trader's surcharge period because of the late return, but HMRC won’t increase the rate of surcharge.

Here's the full note from our newsletter.

The VAT returns for the quarter ended 31 December 2008 are also due for submission by Saturday 31 January 2009. That is unless you or your client has opted to submit the VAT return online, when the deadline is normally extended to 7 February 2009 for both the return and the VAT payment. However, this seven-day extension does not apply where:

• A VAT repayment is due;
• The business has not traded in the period;
• The annual accounting scheme is used; or
• Payments on account are required because the business has an annual VAT
  liability in excess of £2 million.

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