How should VAT payments be allocated?

[anonuk]

A few years ago, I had some issues with vat and have been paying it off slowly but surely and on the whole, hmrc have left me alone.

Fast forward to last month, I filed my vat return, paid the £20,000 vat payment via their new Open Banking system, and thought nothing more of it. About a week later I get a letter saying that because they haven’t received my Vat payment, I’ve received a penalty of £3,000 for late payment (15% of the payment due).

I checked my online vat account and there was no record of the payment whatsoever, so I wrote to HMRC (via signed for post), included a print out of the email confirmation of the payment and a print out of our bank statement showing the £20,000 leaving.

I’ve not had any response to date, so just thought I’d check my vat account online and to my surprise, the £20,000 is now showing but instead of allocating it to the payment due in April which is what it was intended for, they have allocated it all to my previous outstanding balance and so it’s still showing the latest return as overdue (and obviously gives them license to slap me with another £3,000 penalty).

Are HMRC right in doing this or should I kick up a stink?

Seems highly unfair as obviously I know I have to pay the overdue balances but for them to manipulate the repayments like this is a bit unreasonable in my view.

 

[NicoJ]

A few years ago, I had some issues with vat and have been paying it off slowly but surely and on the whole, hmrc have left me alone.

Fast forward to last month, I filed my vat return, paid the £20,000 vat payment via their new Open Banking system, and thought nothing more of it. About a week later I get a letter saying that because they haven’t received my Vat payment, I’ve received a penalty of £3,000 for late payment (15% of the payment due).

I checked my online vat account and there was no record of the payment whatsoever, so I wrote to HMRC (via signed for post), included a print out of the email confirmation of the payment and a print out of our bank statement showing the £20,000 leaving.

I’ve not had any response to date, so just thought I’d check my vat account online and to my surprise, the £20,000 is now showing but instead of allocating it to the payment due in April which is what it was intended for, they have allocated it all to my previous outstanding balance and so it’s still showing the latest return as overdue (and obviously gives them license to slap me with another £3,000 penalty).

Are HMRC right in doing this or should I kick up a stink?

Seems highly unfair as obviously I know I have to pay the overdue balances but for them to manipulate the repayments like this is a bit unreasonable in my view.

If you have an agreed payment plan in place then they shouldn't do this. You need to ask them to reallocate the payment and revoke the interest charged.

 

[Argentum Tax]

If you have an agreed payment plan in place then they shouldn't do this. You need to ask them to reallocate the payment and revoke the interest charged.

@anonuk I agree with what @NicoJ says. It should just be a matter of contacting HMRC and asking them to reallocate your payment to the latest VAT Return. That should cancel the penalty charge, but I would strongly recommend you lodge a written appeal against the penalty to make sure. The details of how to appeal will be on the Penalty Notice that you should have received. The Notice will also give details of the time limit on making the appeal so make sure you do it on time.

Good luck with contacting HMRC. You might be need to hang on the phone waiting for some time before speaking to someone.

 

[anonuk]

Thanks for the replies. I have requested a review of the penalty already which I sent via signed for post as per the instructions. I will try and summon the courage to ring hmrc to request the payment is reallocated but I really don’t like talking to them haha.

 

[Argentum Tax]

I have requested a review of the penalty already which I sent via signed for post as per the instructions. I will try and summon the courage to ring hmrc to request the payment is reallocated but I really don’t like talking to them haha.

I would recommend you also appeal against the penalty, in addition to requesting a review, just to be on the safe side.

 

[Daybooks]

There is a new penalty regime in place now based on points. I believe anything under the old scheme was wiped clean and thus not carried forward (although not sure of the exact legislation on this). Allocation is not one of their stronger points (let me think a moment); often the interest and penalties do get unwound but keep an eye on your Gateway account. Signed for letters are good time savers but have no more chance of affect than three hours on the phone. At least you have proof with the former; don't expect a reply though.

PS - worth checking it is not a scam!

 

[DontAsk]

Good luck with contacting HMRC. You might be need to hang on the phone waiting for some time before speaking to someone.

Best time to call is 8am Monday.

 

[anonuk]

There is a new penalty regime in place now based on points. I believe anything under the old scheme was wiped clean and thus not carried forward (although not sure of the exact legislation on this). Allocation is not one of their stronger points (let me think a moment); often the interest and penalties do get unwound but keep an eye on your Gateway account. Signed for letters are good time savers but have no more chance of affect than three hours on the phone. At least you have proof with the former; don't expect a reply though.

PS - worth checking it is not a scam!

The return in question is for Dec-Feb so doesn’t fall under the old regime unfortunately, so they’ve slapped me with a 15% penalty.

@Argentum Tax thanks, I’ll have a look at how to appeal the penalty separately from requesting a review as the penalty notice only mentions requesting a review.

 

[Gyumri]

It should just be a matter of contacting HMRC and asking them to reallocate your payment to the latest VAT Return.

They won't do that so easily as hmrc are bound to allocate payments to the prior debts in chronological order. It's an old chestnut and they don't like to act as a banker.

 

[NicoJ]

They won't do that so easily as hmrc are bound to allocate payments to the prior debts in chronological order. It's an old chestnut and they don't like to act as a banker.

If there is a payment plan in place then they are breaching that agreement (HMRC) by taking a different amount. Regardless, a taxpayer has the right to allocate the payments to a period they intend (Swanfield vs HMRC).

The amount stated is not on the new penalty regime, its on the old regime so I'm guessing OP has defaulted before (not just the one you're paying off)? You have set up a payment plan with HMRC havent you?

 

[Argentum Tax]

They won't do that so easily as hmrc are bound to allocate payments to the prior debts in chronological order. It's an old chestnut and they don't like to act as a banker.

From what @anonuk says I assume that there is a formal written payment plan in place, which includes an interest charge. That being the case HMRC should stick to that plan and not allocate a current payment of VAT to the debt.

Also, I agree with @NicoJ, a taxpayer normally has a right to allocate the payment.

 

[Gyumri]

Fast forward to last month, I filed my vat return, paid the £20,000 vat payment via their new Open Banking system, and thought nothing more of it

I

Regardless, a taxpayer has the right to allocate the payments to a period they intend (Swanfield vs HMRC).

Paragraph 58 of the judgment is worth reading.

If the OP has an agreed payment plan then he would be right in querying the allocation otherwise it seems he's been scuppered to put it politely.

On the other hand one would think that if the vat due was £20,000 and he paid that sum that HMRC would understand that it should only be applied to that debt rather than settle historic debts.

 

[Argentum Tax]

On the other hand one would think that if the vat due was £20,000 and he paid that sum that HMRC would understand that it should only be applied to that debt rather than settle historic debts.

@Gyumri I agree one would expect HMRC to apply the £20,000 to the recent VAT return in this case, given it is for the same amount. Unfortunately it doesn’t always happen that way, and mis-allocation is pretty common. Without manual intervention HMRC systems will all too often allocate payments in the wrong way resulting in unintended consequences (such as penalties and interest charges). Only by contacting HMRC and getting someone to intervene will the allocation be corrected.