If your firm crosses the VAT registration level of taxable sales in the UK, it becomes legally compelled to register for and submit regular Value Added Tax (VAT) returns. Many businesses actively register to reclaim VAT on purchases, even if they are not close to the threshold. In this comprehensive tutorial, we’ll investigate UK VAT compliance in depth – from registration requirements to VAT return methods, programmes, and penalties for non-compliance.
What is VAT Return Filing?
Filing a VAT return requires submitting a report to HMRC that outlines the total VAT your UK business collected from the sales of goods and services (outputs) and the VAT paid on business purchases (inputs) over a specific reporting period. Returns must be submitted accurately and on time based on thorough sales records for HMRC to reimburse refunds owed or receive VAT due. Late submission risks fines.
Who Needs to File VAT Returns in the UK?
Any UK business that surpasses the current VAT registration threshold of £85,000 in total taxable sales over a rolling 12 month period must register and file VAT returns. This includes non-profit organizations and charities if taxable trading operations surpass the threshold. Some businesses voluntarily register even if under the limit in order to recuperate VAT paid.
If you’re not sure if the present sales volumes of your company require VAT registration, carefully review the VAT Registration instructions available on the gov.uk website. As you get closer to the limit, use the VAT thresholds tool to estimate taxable sales conservatively. Make sure you register as soon as totals surpass the required threshold in order to avoid penalties.
How Often Are VAT Returns Submitted?
For established enterprises, to file a VAT return is often done on a quarterly basis. This means totals for VAT collected and paid are computed separately for each individual quarter (January-March, April-June, etc), then reported and any net VAT owed returned to HMRC. The quarterly filing deadlines are one month and 7 days following the end of each period.
However, if your business’ yearly VAT taxable sales surpass £2.3 million, HMRC mandates filing monthly VAT returns rather than quarterly. This gets tax monies into the Treasury more swiftly while limiting the possible unpaid VAT liability amounts that can accumulate.
Newly registered businesses might request authorization to file monthly initially in order to speed up reclaims for VAT refunds on purchases until regular sales are established. Some voluntarily registered firms file annually, but must request authorization. Know your specific reporting frequency to maintain compliance.
Step-By-Step Process to File Your VAT Return
Follow this standard routine to correctly complete and submit your business’ VAT returns on time:
Maintain pristine sales and purchase records with invoices/receipts. Retain documentation to substantiate all transactions stated in case of future audits.
Calculate total VAT collected from sales of goods/services over the period. These outputs must match your cashbook.
Calculate total VAT paid to suppliers and HMRC on business purchases and expenses. The invoices and these inputs ought to line up.
Subtract all VAT input claims from VAT outputs to establish the net amount payable to HMRC, or potential refund owing to your business.
Use HMRC’s free bridging software to enter figures into the online VAT return form. Alternatively, accounting software like Xero automates VAT return filling.
Review accuracy thoroughly before submitting. Any mistakes may delay refunds greatly.
File the return along with payment for any net VAT payable by the deadline to prevent late penalties.
Consequences and Risks of Failing to Submit VAT Returns
It is vital for all registered firms to file complete and accurate VAT returns on time to avoid HMRC enforcement actions and fines. Potential implications of non-compliance include:
Automatic initial late filing fines up to £400 for returns submitted after the deadline. Further fines can be applied for continuous late submissions.
Surcharges up to 15% of the VAT amount owed for late payment of liabilities. This is in addition to settling the owing tax.
VAT assessments arbitrarily given by HMRC for lengthy non-filing. These issue tax bills based on predicted liabilities that often need disputed if erroneous.
Increased possibility of detailed VAT inspections and thorough tax audits by HMRC. Errors found lead to large backdated tax bills.
Forfeiture of refunds owed until compliance is restored. Non-filed returns delay VAT credit repayments.
Potential de-registration by HMRC eventually for chronic gross non-compliance. This still involves paying tax owed.
Avoid Penalties Through VAT Filing Support
Managing VAT schemes like Flat Rate or Cash Accounting properly demands skill. Seeking competent accounting advice ensures you remain compliant, maximize reclaims, and prevent fines.
Shortfalls in resources or expertise should not prohibit satisfying your VAT filing and payment duties which entail harsh penalties if neglected. Let competent accountants manage filings, payments, and recommending tactics to lawfully minimize VAT owing. Stay compliant and focused on business growth.