Understanding VAT (Value Added Tax) is crucial for business owners in the United Kingdom. VAT returns are a regular duty for VAT-registered firms, and meeting deadlines, making precise payments, and avoiding penalties is critical to compliance with HM Revenue & Customs (HMRC).
Any firm registered with HMRC as a non-resident VAT trader must report taxable transactions regularly in the form of returns. A VAT Return specifies how much VAT a corporation must pay or be repaid by HM Revenue and Customs (HMRC). VAT is subject to various dates, thresholds, rules, and laws. Through this article, you will review all the essential components of UK VAT returns, such as due dates, payment options, and potential penalties.
VAT Returns Due Dates & Deadlines
UK VAT returns usually are filed quarterly. However, businesses can request alternate accounting periods based on their requirements. Keeping track of your VAT accounting periods and the corresponding due date for submitting your returns is crucial to ensure compliance. After completing the accounting period, VAT returns are due one calendar month and seven days later.
After the end of each VAT accounting period, the VAT return and payment are due one calendar month plus seven days later.
If your VAT accounting period ends in March, June, September, or December, the filing and payment date is the 7th of the month following.
For example, if your VAT quarter finishes on March 31st, the due date is May 7th.
New VAT Penalty Rules (Effective from 1 January 2023)
The new VAT penalty rules came into effect on 1 January 2023. These rules were introduced to create a fairer and more proportionate system while encouraging businesses to submit VAT returns and payments on time.
Penalty Points for Late VAT Returns
Under the new system, businesses receive penalty points for submitting VAT returns late instead of the previous surcharge regime. One penalty point is added for each late submission.
Once a business reaches the penalty threshold (which depends on how frequently it submits VAT returns), HMRC issues a fixed £200 penalty. Each additional late VAT return after reaching the threshold results in a further £200 penalty.
Financial Penalties for Late VAT Payments
Penalties for late VAT payments now depend on how long the payment is overdue.
For VAT payments that are 16 to 30 days late, a penalty of 2% of the VAT outstanding at day 15 is charged.
For payments that are more than 30 days late, an additional 2% penalty applies to the VAT still unpaid at day 30.
Interest Charges on Late VAT Payments
HMRC charges interest on late VAT payments at the Bank of England base rate plus 2.5%, calculated daily from the payment due date until the VAT is paid in full.
How to Avoid Penalties?
There are a few options for avoiding fines for late VAT returns and payments. These include timely submission of your VAT return.
- Submitting your VAT return on time
- Paying VAT by the deadline
- Contacting HMRC as soon as possible if you are unable to pay the VAT owed
- Maintaining accurate and up-to-date VAT records
If you are late for a genuine reason, such as serious illness, bereavement, or an unexpected system failure, you may be able to appeal penalties using HMRC’s “reasonable excuse” process.
Tips & Tricks for Avoiding Penalties:
- Set calendar reminders for VAT return deadlines
- Ensure sufficient funds are available to cover VAT payments
- Contact HMRC early if you anticipate payment difficulties
- Keep detailed records of VAT charged and VAT paid to reduce errors
Making Tax Digital (MTD) and VAT Returns
All VAT-registered businesses must submit VAT returns using Making Tax Digital (MTD) compatible software. HMRC no longer allows manual VAT return submissions, except in limited exemption cases. Failure to comply with MTD requirements can result in penalties, even if your VAT is calculated correctly.
Using MTD-compliant software also helps reduce errors and ensures VAT data is submitted securely and accurately.
Payments Gateways for VAT
To avoid penalties, it is important to make accurate and timely VAT payments. HMRC offers several payment methods to help businesses meet their VAT obligations.
Direct Debit
Setting up a Direct Debit with HMRC allows VAT payments to be collected automatically on the due date. This is one of the most reliable ways to avoid late VAT payments.
Bank Transfer
Businesses can pay VAT via bank transfer using HMRC’s bank details. Always include your VAT registration number and the correct accounting period reference when making a payment.
Online Card Payment
VAT can also be paid through HMRC’s online payment service using a debit or corporate credit card.
To Sum Up
Keeping track of your VAT duties is crucial for every VAT-registered firm in the United Kingdom. Understanding the due dates, utilising the proper payment methods, and avoiding late submissions and payments can help you stay in compliance with HMRC and avoid fines. Check HMRC’s website regularly for updates or changes to VAT legislation and consult a tax professional to guarantee correct and up-to-date compliance with your VAT returns.
FAQ
Do I need to register for VAT before submitting returns?
Yes, you must register for VAT once your taxable turnover reaches £85,000. You can only submit returns after registering.
How can I check my VAT return deadlines with HMRC?
Check your HMRC online account or use MTD-compatible software. Returns are due one month and 7 days after each quarter ends.
What information do I need to complete a VAT return?
Sales and purchases records, VAT charged to customers, VAT paid on purchases, and any adjustments or corrections.
Can I set up automatic VAT payments to HMRC?
Yes, you can set up Direct Debit through your HMRC online account for automatic payments.
What are common mistakes to avoid when submitting VAT returns?
Missing deadlines, incorrect calculations, not using MTD software, and forgetting to include all transactions.
Can penalties be appealed if I miss a VAT deadline?
Yes, you can appeal both points and financial penalties through HMRC if you have reasonable excuse.
Is there a difference between VAT return deadline and payment deadline?
No, both the return and payment are due on the same date – one month and 7 days after the quarter ends.
How does the new VAT penalty system differ from the old one?
HMRC now uses a points-based system with each overdue submission earning one penalty point, leading to a £200 penalty when the threshold is reached.
Can I file VAT returns manually?
No, businesses must now use compatible software to generate and submit VAT returns electronically through Making Tax Digital.
What happens if my VAT return shows a repayment rather than payment due?
HMRC will refund the overpaid VAT to your bank account, usually within 30 days of submitting your return.
Parul is a content specialist with expertise in accounting and bookkeeping. Her writing covers a wide range of accounting topics such as payroll, financial reporting and more. Her content is well-researched and she has a strong understanding of accounting terms and industry-specific terminologies. As a subject matter expert, she simplifies complex concepts into clear, practical insights, helping businesses with accurate tips and solutions to make informed decisions.