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As a VAT registered business, there are just two things you need to do to avoid a VAT penalty: pay your VAT on time and submit your VAT return on time. If you fail on either task twice within 12 months, you are put on the VAT equivalent of the naughty step.


Businesses with a turnover of £150,000 or more do not get that one-time free pass, as they are put on to the VAT naughty step (aka: VAT surcharge period) after just one late payment, or late filing of a return.


The surcharge period is a serious one-way trap, as once you are in you can't get out until you demonstrate a full 12 months of good behaviour. Any late payment or late filing within those 12 months means the surcharge period is extended for another 12 months.


What's more, the penalties start racking up. The first missed deadline within the surcharge period generates a penalty of 2% of the late VAT, the second missed deadline is a 5% penalty, then 10%, and finally 15% of the late paid VAT (ouch!).


Remember that even one day beyond the deadline means you are late. It’s easy to overlook a small penalty charge if your annual turnover is under £150,000, as you won’t receive a penalty bill for less than £400. But, the surcharge period will be extended and the penalties will continue to ratchet up should you default again.


The key thing to remember is: pay your VAT on time, every time.

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Clarke Nicklin House, Brooks Drive, Cheadle Royal Business Park, Cheadle, Cheshire, SK8 3TD. Registered Number OC309225.
The firm is registered to carry on audit work in the UK & Ireland. Details about our audit registration can be viewed at www.auditregister.org.uk under reference number C001178544. The professional rules applicable are the Audit Regulations and Guidance which can be found at www.icaew.com/regulations, and the International Standards on Auditing (UK and Ireland) which can be found at www.frc.org.uk/apb/publications/isa.cfm.