Using VAT surcharges in Sage Accounting.
Resolution
HMRC may impose a VAT surcharge when
- A VAT return is not submitted and paid by the due date
- A VAT Return is incomplete or incorrect
When this happens HMRC may impose a fine or recalculate the payment required. This is known as a VAT surcharge.
How it works
Record the amount of the VAT surcharge using journals. Then record the payment of the surcharge separately. To do this
- Create a new ledger account. This makes it easier to track any VAT surcharges on your financial reports. Record this as an overhead (expense) on your Profit and Loss, and as a current liability on your Balance Sheet.
- Enter a journal to record the amount of the surcharge.
- Record details of the payment to show when you've paid the surcharge.
To record your VAT surcharge, create a new ledger account to track any VAT surcharges on your financial reports. As this is an expense to the business, the ledger account must be in the Overheads category.
- From Settings, choose Business Settings.
- In Financial Settings, select Chart of Accounts.
- Select New Ledger Account. Leave the defaults as selected and then enter the following information:
- Ledger Name - enter a name such as VAT surcharges
- Nominal Code - enter code for the ledger account. If you use the default chart of accounts we recommend a code between 6000 and 9999, such as 7907
- Category - choose Overheads
- VAT Rate - choose No VAT
- Select Save.
Make the VAT liability Ledger Account visible for payments
To record the payment of the VAT surcharge, you need to make sure the VAT liability nominal ledger account is visible when entering Other Payments.
- From the Chart of Accounts, the VAT Liability ledger account.
- In the Visibility section, select Other Payment and Save.
Create a journal to record the value of the VAT surcharge. In our example, the surcharge is £100.
- From Adjustments, choose Journals then New Journal.
- Enter a Date and Reference for the VAT surcharge and, if required, enter a Description.
- Enter the details on two lines as follows
- Don't forget, the total value of debits and credits must be the same before you can save the journal. The VAT surcharge must not be included on VAT return.
| Ledger Account | Details | Debit | Credit | Include on VAT Return? |
| VAT Surcharges (7907) | VAT Surcharge | 100.00 | 0.00 | Leave clear |
| VAT Liability (2202) | VAT Surcharge | 0.00 | 100.00 | Leave clear |
- Select Save.
- From Banking, open then choose the required bank account.
- Select New Entry then Purchase / Payment, then choose Other Payment.
- Enter the date of the payment, the amount paid and a reference if required.
Enter the details of the ledger account as follows.
| Ledger Account | Details | VAT Rate | Total |
| VAT Liability (2202) | VAT Surcharge | No VAT | 100 |
- Select Save.
You’ve now recorded the payment of the VAT surcharge to HMRC. This reduces the balance on the VAT Liability nominal ledger account.
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