Did you get a fine for sending your VAT return in late?

There is a form for claiming that you had a reasonable excuse.

As a rule excuses such as “the dog ate my homework” do not tend to work. HMRC do sometimes behave strangely and in one notorious case decided that death was not a reasonable excuse – unsurprisingly the taxpayer won at Tribunal.

With Making Tax Digital it will be interesting to see how things pan out. Allegedly there will be a lightish touch – we’ll wait to see on that. HMRC says that just because you cannot make the software work, they expect you to pay the tax on time. At this stage you might ask how you’re supposed to know the answer if the return does not get filed by the computer and the computer does not tell you the answer. Well you have to guess. It is know as estimation.

I would not expect HMRC to attack small underestimates, but if your normal liability is say £5,000 and you pay, say, £500 and it turns out you should have paid £5,000 expect trouble. If you are on cash accounting, there is a fairly simple way of getting a correct answer. Add up your debtors banking for the quarter and, after filtering out anything that is zero-rated or exempt, divide the total by six (unless you’re into the 5% rate). You can then either add up the bills you have paid where you know that you have been charged VAT, or else look at the previous four returns and work out the input tax as a ratio of output tax from that information (that sounds much harder than it actually is).

Strictly you need HMRC’s permission to “estimate”. Call the National Advice Service and ask for permission explaining your difficulty. They should agree. If they do not, make a note, and in any event ask for the call reference number. If HMRC refuse unreasonably, then you can use this as your reasonable excuse on the form! But do not leave your guess until the last minute!

If you are subject to a fine for late payment, think through what had been happening not only at the time, but also in previous tax periods where you have been late, and submit your “reasonable excuse” on the HMRC form.

If you would like some assistance, it is something we have a lot of experience in.