Value Added Tax Act 1994 section 59

The default surcharge

Section 59 establishes a penalty regime for taxable persons who fail to submit their VAT returns or pay their VAT on time, imposing escalating surcharges for repeated defaults within a defined surcharge period.

• A taxable person is "in default" if HMRC has not received their VAT return or the VAT payment due by the filing deadline for a prescribed accounting period, unless they are required to make payments on account of VAT under section 28
• On a first default, HMRC issues a surcharge liability notice setting a surcharge period that runs from the date of the notice until the first anniversary of the last day of the relevant accounting period; further defaults extend that surcharge period
• If a person defaults again within the surcharge period and has outstanding VAT, they are liable to a surcharge equal to the greater of a specified percentage of the unpaid VAT or £30, with the percentage escalating from 2% (first default) to 5%, 10%, and then 15% for each subsequent default
• A person can avoid the surcharge by demonstrating to HMRC or a tribunal that the return or payment was despatched at a reasonable time and in a reasonable manner, or that there was a reasonable excuse for the failure