VAT return deadline: how it works ?
All businesses in the UK, including self-employed workers, must register for value-added tax (VAT) when their turnover reaches £85,000 per year. Under this threshold, VAT registration is possible but not legally compulsory. By registering for VAT, a company must charge VAT at the appropriate rate on all its invoices and must report these charges and transfer the corresponding amount to HMRC on a quarterly basis. Only businesses that are not VAT-registered can issue invoices without VAT.
What is VAT Return ?
The way that businesses report their input and output VAT to HMRC is through a document known as a VAT Return. A VAT Return is a form that calculates the amount of VAT that the business has charged and the amount of VAT it has paid. The difference between these two figures determines whether the business will receive a VAT repayment or whether it has an outstanding amount to pay to HMRC. VAT Returns can be filed online directly on the HMRC website. Businesses can either file their Return themselves or authorise a third party, such as an accountant, to do that for them.
Deadlines for VAT Returns
VAT Returns are filed on a quarterly basis that starts from what is known as the “effective registration date” which is the date the business first registered for VAT.
This means that every business has a different deadline for filing its VAT Returns. As is so often the case when it comes to tax, there is no one-size-fits-all. You need to investigate the specific conditions that apply to you and your business.
Regardless of the effective registration date, VAT Returns are due one calendar month and seven days after the end of what is known as the “accounting period”, the three-month period being reported. All transactions within that three-month period are covered and should be included in the VAT Return. Under certain circumstances, you may allow clients to pay a deposit or make an advance payment to secure the provision of a good or service in the future. In this case, the VAT should appear on the invoice for the deposit and be included in the relevant VAT Return.
Example of VAT Return Deadline
Let’s take an example. Say a small business registered for VAT on 15 April 2019. Its effective date of registration was 15 April, and its first VAT return will cover the three-month period from 15 April to 15 July. The deadline for its VAT return for the first quarter would be one calendar month and seven days after 15 July 2019, which would be 22 August 2019. Its next VAT return would cover the period from 15 July to 15 October and would be due on 22 November, and so on.
Settling VAT Payments and HMRC
You must bear in mind that the deadline for settling any VAT outstanding to HMRC is the same as the deadline for the VAT Return. In other words, if after calculating your input and output VAT you realise you owe HMRC £4,500, that amount must have reached the government’s account on the date of the deadline for your VAT Return. This is why it is essential to prepare for filing your VAT return in advance as this allows for the time it takes for the money to be transferred.
Under exceptional circumstances, you may apply to file monthly VAT returns rather than quarterly returns. Small businesses with tight cash-flow issues may find waiting for their quarterly VAT repayment extremely difficult. They can then apply to file monthly returns. This has to be approved by HMRC.
The UK Government continues to explore the use of what are known as “VAT split payments” to avoid tax evasion and enforce VAT compliance on suppliers outside the UK. More information can be found online. Within the EU, some countries apply VAT split payments. It should also be noted that what is known as the “reverse-charge mechanism” applies to transactions between EU Member States, although as a consequence of Brexit, the UK is no longer concerned by this mechanism.
If you are eligible for a VAT refund, this usually clears into your bank account within 30 days of your VAT Return being filed.
You can check your VAT Return deadlines by logging into your online account. There is an option to be sent email reminders of when a VAT Return is due, so there is really no excuse for being late! Your online account can also tell you when your payments have cleared.
Your online account will also inform you if there are any opportunities to defer your VAT payment. One such exception was recently extended to businesses during the coronavirus pandemic to reduce the burden of VAT payments.
Filing your return late can result in a penalty known as a “surcharge” being imposed by HMRC. There is usually no surcharge for the first time you are late, but depending on how many times you are late filing (also known as “defaulting”), a surcharge will be applied. The surcharge is calculated as a percentage of the VAT which you have not paid.
The amounts of the surcharges which apply are available on the HMRC website and go up to £30.
In addition to a surcharge being applied for late filings, you may also be fined for filing a false VAT return. Minor and occasional errors are unavoidable and can usually be corrected on a future VAT return, specifically if they amount to less than £10,000. Failure to notify HMRC if you are aware of an error can lead to a misdeclaration penalty of up to 15% of the VAT.
Misleading the HMRC as to the actual amount of VAT or mischarging or misreporting VAT constitutes fraud and is taken extremely seriously. It can lead to severe penalties up to and including prison sentences.
There is no specific date on which all VAT Returns are due. A business that registers for VAT in January will have different reporting deadlines from one that registered in December or March. It is important not to assume that the regulations that apply to one business also apply to yours. Your approach to VAT needs to be personalised and take into account the specific needs of your business. A Mooncard payment card can help streamline your VAT records and make it easier to track your incoming and outgoings. This in itself can make your VAT Returns a whole lot easier!
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