My US company with UK registered trading subsidiary.
Qtr to 31/03/14 was a refund, @£50k - VAT raised queries but by that time problems with the VAT reporting had been discovered which increased the repayment to £60k. The main problems were US$ values being reported instead of translated UK£ ones, so overstatement had occurred, plus credits were not being picked up for the VAT returns, plus VAT wrongly charged on ex-EC exports.
Before this was resolved the Qtr 30/06/14 was due with @ £30k VAT payable.
Return was delayed until refund received as first default.
However, result of review of 6 qtrs to 31/12/13 showed £340k overpaid. VAT652's submitted and pending.
Qtr 30/09/14 due today, due to HMRC @ £75.
Unfortunately there is a DD in place, so if we file the £75 will be taken, even though net refund £265k due.
If we don't file, 2% surcharge = @£1400 surcharge.
So I suppose the question is, if we don't file would we be likely to successfully appeal the penalty, and if we call HMRC and tell them today that we are not filing and why would that make a successful appeal more likely?
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Replies (11)
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Cancel DD
Is cancelling the DD and reinstating it next quarter not an option?
You might still get a penalty raised for failure to pay, but that is very appealable in the circumstances. The fact is it will be "paid" by the refund due. I think you will struggle to get the penalty for failure to submit a return overturned.
If I call ...
... which number - I am loathe to call NAS Helpline as they will just fob me off, should I call DMU?
Is the client having cashflow issues?
If not, I would just pay it and wait for the bigger refund later. Yes they won't have the use of it for however long, but it should be worth the saving in headaches and time later chasing off a £1400 surcharge.
@ Stepurhan ...
... did consider this but it is a US bank, not a UK clearing bank and that is likely just to stuff things up big time!
Default Surcharge
If you are Surcharged, it will cost you as much to challenge a Surcharge for £1,400. You should be successful, as you were waiting for (1) adjustments to be made, and (2) HMRC to pay.
Thanks Les ...
... why would it cost so much to challenge a surcharge?
Not done a VAT one, but for say CIS I write a letter appealing with my grounds, if they are good grounds generally get a letter back cancelling the penalty.
If it were not for the DD I would just file and not pay, but as stated above, due to the nature of the client cancelling the DD is not as easy at it would be when dealing with a high street clearing bank.
@michaelbeaver ...
... don't know per se, the client is a service depot for US firm so just has a float. It is still quite a sum as it has already got £340k out of circulation, so another £75k is getting up to half a million, not many firms would want to carry that size cash shortfall, and we could be waiting weks for cash to come back, HMRC have yet to respond to teh VAT652's, and I would be extremely surprised if they don't ask for chapter and verse first.
Just so you know ...
... client decided not to file.
My view is that at worst they will get a second default, but as VAT account in net credit there should be no surcharge, if I remember I'll let you know how it pans out.
Default Surcharge
Under current rules, Repayment Returns do not trigger Defaults for the purposes of the Default Surcharge. Under rules due to be introduced, this will change, so that late Repayment Returns WILL trigger Defaults.
Return not repayment
The tricky thing is this case is that the return itself is not a repayment return. It is just that the client is in an overall repayment position. It will be interesting to find out what difference this distinction makes to the penalty position. It would be right and proper for no surcharge to apply anyway, but when has that ever been a central principle of the VAT rule?