VAT payments and surcharges

If you don’t pay all the VAT you owe on time, HMRC will eventually send you a surcharge calculated as a percentage of the unpaid VAT. This surcharge is not interest, and doesn’t relate to the length of the delay for the payment, just the amount of unpaid VAT.


The surcharge increases each time the VAT for a quarter is late: from nil to 2%, 5%,10% and finally, 15%. There is a £400 minimum floor for the surcharge for the first three late payments, so you may not receive a bill until the penalty has reached 10% or 15%.

This system encourages businesses to pay the VAT due for later periods, for which the surcharge will be higher, in favour of VAT debts due for earlier periods. However, the HMRC computer wants to allocate any VAT paid on account to earlier periods, leaving the later period exposed to a higher surcharge.

If you are trying to pay your VAT as you go along to avoid surcharges, always specify which periods the payment should be set against. If you may not be able to pay the next amount of VAT in full, you need to come to a time to pay agreement with HMRC. This will avoid a surcharge being imposed, and gives you certainty as to the payment arrangements. If you already have a surcharge do you have a “reasonable excuse?” Contact us should you wish to discuss.