VAT surcharges and payment allocation

[bd1011]

To cut a long story short I dropped the ball with my business during Covid, VAT returns were filed and paid late and attracted assessments and surcharges. I managed to turn things around, and filed and paid all outstanding returns.

I appealed the surcharges but it was rejected.

The problem now is although i've paid the last 3 returns in full and on time it looks like they are allocating those payments against the historic surcharges, which then triggers another surcharge on the latest return and i'm stuck in a cycle. I am paying adhoc amounts off the surcharges as well both directly to my VAT account and also to a debt collector they've instructed.

I've written 3 times now to try and get a statement of my VAT account to try again work out where we are, 2 letters were ignored and 1 just had a generic reply which didn't address anything I asked.

I accept I owe these surcharges and want to get my account back in order but I just feel like i'm going round in circles with it. Is it possible to have payments allocated to the return they apply to to stop these further surcharges?

I tried looking in my online account but the payments section is empty.

Thanks

 

[MyAccountantOnline]

To cut a long story short I dropped the ball with my business during Covid, VAT returns were filed and paid late and attracted assessments and surcharges. I managed to turn things around, and filed and paid all outstanding returns.

I appealed the surcharges but it was rejected.

The problem now is although i've paid the last 3 returns in full and on time it looks like they are allocating those payments against the historic surcharges, which then triggers another surcharge on the latest return and i'm stuck in a cycle. I am paying adhoc amounts off the surcharges as well both directly to my VAT account and also to a debt collector they've instructed.

I've written 3 times now to try and get a statement of my VAT account to try again work out where we are, 2 letters were ignored and 1 just had a generic reply which didn't address anything I asked.

I accept I owe these surcharges and want to get my account back in order but I just feel like i'm going round in circles with it. Is it possible to have payments allocated to the return they apply to to stop these further surcharges?

I tried looking in my online account but the payments section is empty.

Thanks

Have you actually spoken directly to HMRC to discuss a payment plan?

 

[UK Contractor Accountant]

In Swanfield Limited & Others v HMRC [2017] UKUT 0088 the Upper Tribunal (UT) held that VAT payments can be allocated to current period VAT in order to minimise default surcharges.

The case involved a number of companies which ran hotels:

• Following financial difficulties, they were late in paying VAT over a number of periods and were charged over £290,000 of VAT default surcharges.
• The taxpayers claimed these would not have arisen had HMRC allocated payments they had made to current, rather than historic, liabilities.

The First-tier Tribunal (FTT) rejected the taxpayer’s initial appeal on the grounds that they couldn’t allocate a payment to a liability that had not become a debt, and VAT doesn’t become a debt until the last date for payment.

The UT has now overturned the FTT’s decision, finding that:

• Taxpayers have the right to allocate a payment to VAT that is not yet due for payment (i.e. to the current period).
• Payments don’t have to be limited to the output tax that has arisen to date in the period: any excess can be treated as a payment on account of output tax yet to accrue.
• If the taxpayer does not allocate a payment HMRC can choose how to allocate it: there is no requirement for HMRC to do this in a way which minimises surcharge liabilities.

 

[lesvatadvice]

I agree with the comment on the Swanfield Tribunal decision. You have the right to have payments allocated most advantageously for you.
The current problem is that HMRC are extremely slow at dealing with correspondence. You will have to be patient and perhaps send monthly reminders. I would like to think that, eventually, HMRC will have to re-allocate those payments and provide you a refund.
You might also ask for compensation.

 

[Gyumri]

How does the OP deal with the accrued surcharges if he wants new VAT payments to only be allocated to the corresponding period? HMRC would still expect the surcharges to be paid.

 

[lesvatadvice]

The surcharges would be reduced or cancelled, depending on the re-allocation. Ultimately, he has grounds for appeal on the basis that the return payments in question had been made, so no liability to surcharge arises.
VAT Act 1994, s59(1)(b) is the statutory reference.

 

[Gyumri]

VAT returns were filed and paid late and attracted assessments and surcharges.

I can't see how the OP can avoid paying the surcharges no matter how he requests his late payments to be allocated. Surcharges are unavoidable but if assessed they will be adjusted when a return is actually submitted.

The VAT act quoted and the judgment doesn't seem to offer the OP a get out of jail for free option.

 

[NicoJ]

I can't see how the OP can avoid paying the surcharges no matter how he requests his late payments to be allocated. Surcharges are unavoidable but if assessed they will be adjusted when a return is actually submitted.

The VAT act quoted and the judgment doesn't seem to offer the OP a get out of jail for free option.

Nobody is suggesting the original surcharges shouldn't be paid. OP is paying his current liabilities but due to the allocation of these payments HMRC are creating new surcharges. If the payments were allocated as intended then the ever increasing surcharge circle would end.

 

[Gyumri]

Thanks for the clarification. I can understand the OP's dilemma.