Understanding Value Added Tax (VAT) is essential for UK businesses, especially with recent updates to thresholds and penalties for late filling/payment. CloudAcc is dedicated to guiding you through the VAT process, ensuring your business remains compliant and benefits from potential advantages.
Updated VAT Registration Threshold
Effective from 1 April 2024, the VAT registration threshold increased from £85,000 to £90,000. This means businesses must register for VAT if their taxable turnover exceeds £90,000 in any 12-month period. It’s crucial to monitor your turnover regularly to determine if you surpass this threshold. If you anticipate exceeding this limit in the next 30 days, registration is mandatory. Failing to register on time can result in penalties and interest charges.
Key VAT Return and Payment Deadlines
Once registered, businesses are typically required to submit VAT returns quarterly. Each VAT return is due for filing one month and seven days after the end of the VAT period. For example, for a VAT period ending on 31 March, the deadline would be 7 May. It’s essential to adhere to these deadlines to avoid late submission penalties.
VAT Schemes
In the UK, businesses can choose from various VAT schemes to simplify their tax processes. The Standard VAT Accounting Scheme involves VAT returns based on invoice dates. The Flat Rate Scheme allows businesses with a turnover of £150,000 or less to pay a fixed percentage of their turnover as VAT, reducing administrative tasks. The Cash Accounting Scheme enables businesses with a turnover up to £1.35 million to account for VAT based on actual payments received and made, aiding cash flow management. The Annual Accounting Scheme permits businesses with a turnover up to £1.35 million to make advance VAT payments towards an annual VAT return, reducing the frequency of VAT filings. Additionally, Retail Schemes offer simplified VAT calculations for retailers, and Margin Schemes apply VAT only to the profit margin on the sale of second-hand goods, antiques, or collectibles.
Late VAT Registration Penalties
If you fail to register for VAT when required, HM Revenue & Customs (HMRC) may impose a penalty based on the VAT due from the date you should have registered:
- Up to 9 months late: 5% of the VAT due
- More than 9 months but not more than 18 months late: 10% of the VAT due
- More than 18 months late: 15% of the VAT due
The minimum penalty is £50. HMRC will notify you in writing about the penalty amount and provide information on how to appeal if you believe it’s unwarranted or incorrect.
Late VAT Return Submission Penalties
For VAT accounting periods starting on or after 1 January 2023, a points-based system applies:
- Penalty Points: Each late submission incurs one penalty point.
- Thresholds: Upon reaching a specific threshold, a £200 penalty is issued. The thresholds are:
- Annual submissions: 2 points
- Quarterly submissions: 4 points
- Monthly submissions: 5 points
After reaching the threshold, each subsequent late submission results in an additional £200 penalty.
Late VAT Payment Penalties
Effective from 1 January 2023, the penalty structure for late VAT payments is as follows:
- Up to 15 days late: No penalty if the payment is made or a payment plan is agreed upon within this period.
- 16 to 30 days late: A penalty of 2% of the outstanding amount at day 15.
- 31 days or more late: A 2% penalty of the amount outstanding at day 15 plus an additional 2% of the amount still outstanding at day 30 (totalling 4%). From day 31 onwards, a daily penalty accrues at a rate of 4% per annum on the outstanding amount until full payment is made.
Additionally, HMRC charges late payment interest from the due date until the payment is made in full, calculated at the Bank of England base rate plus 2.5%.
Avoiding Penalties
To prevent these penalties:
- Timely Registration: Monitor your taxable turnover regularly and register for VAT promptly if you exceed the threshold.
- On-Time Submissions: Ensure VAT returns are submitted by the due dates.
- Prompt Payments: Pay any VAT due by the deadline or arrange a payment plan with HMRC if needed.
How CloudAcc Can Help
At CloudAcc, we understand the complexities of VAT and the challenges businesses face in staying compliant.
Contact our expert team today to see how we can make your VAT process seamless and compliant. Please get in touch.