If your business makes more than the minimum amount of taxable sales in the UK to be required to register for VAT and send in regular VAT reports, you will be required to do so by law. Many businesses sign up to get VAT back on sales, even if they aren’t close to the threshold. In this in-depth guide, we’ll look at UK VAT compliance in great detail, covering everything from registration fees to VAT return processes, schemes, and penalties for not following the rules.
How do I file my VAT return?
When you file a VAT return, you send HMRC a report that sums up the total VAT your UK business earned from selling goods and services (outputs) and the VAT it paid on purchases for the business (inputs) during a certain reporting period. In order for HMRC to credit refunds owed or receive VAT due, returns must be filled out correctly and on time, based on specific sales records. If you file a VAT return late, you could be fined.
Who in the UK needs to fill out a VAT return?
A UK business must register for VAT if its total taxable sales are more than £85,000 over a rolling 12-month period. They must also file VAT reports. This includes charities and non-profits if their taxable business actions go over the threshold. Some businesses choose to register, even if they aren’t required to, so they can get back the VAT they paid.
If you’re not sure if your business needs to register for VAT based on its current sales, you can read the VAT Registration tips on the gov.uk website carefully. As you get closer to the limit, use the VAT limits tool to get a rough idea of how much of your sales will be taxed. To avoid fines, make sure you register on time as soon as your totals reach the required level.
How Often Should VAT Returns Be Sent?
Businesses that have been around for a while usually have to file their VAT returns every three months. This means that the total amount of VAT received and paid is calculated separately for each quarter (January to March, April to June, etc.). This information is then sent to HMRC, along with any net VAT that is owed. One month and seven days after the end of each period is the due date for filing every three months.
But if your company makes more than £2.3 million in VAT-taxable sales a year, HMRC wants you to file VAT returns monthly instead of every three months. This brings tax money into the Treasury more quickly and limits the amount of VAT that could be owed that can build up.
Businesses that have just been registered can ask to be able to file once a month at first so that they can get their VAT returns faster until they start making regular sales. Some businesses that choose to be listed file every year, but they have to ask for permission to do so. To stay in line, you need to know how often you need to report.
How to File Your VAT Return Step by Step
To finish and send in your business’s VAT returns on time, follow this common order:
Keep perfect records of your purchases and sales with bills and receipts. Keep proof of all the activities you list in case you need to show it in an audit later on.
Figure out how much VAT was received from sales of goods and services during the time period. These results must match what’s in your cashbook.
Find out how much VAT your business paid on purchases and costs and how much it paid to suppliers and HMRC. Invoices should match up with these data.
Take the net amount you owe HMRC or the amount of money your business might get back by subtracting the total amount of VAT input claims from the total amount of VAT outputs.
Free bridging software from HMRC can be used to put numbers into the online VAT return form. On the other hand, accounting tools like Xero can file your VAT return automatically.
Carefully check for correctness before sending. Any mistakes could make returns take a long time to arrive.
To avoid late fees, you must file the return and pay any net VAT that is owed by the due date.
What will happen if you don’t send in your VAT returns?
To avoid fines and actions from HMRC, all companies that are registered must file full and correct VAT returns on time. Possible results of not following the rules are:
Automatic first-time late filing fines of up to £400 for returns turned in after the due date. More fines can be given for consistently turning in work late.
charges extra fees of up to 15% of the VAT amount due for paying debts late. This is on top of giving back the tax that was owed.
Randomly given VAT assessments by HMRC for long periods of not filing. These make tax bills based on projected debts, which usually need to be contested if they are wrong.
More likely that HMRC will do thorough tax checks and thorough VAT inspections. There were mistakes that led to big tax bills from the past.
Loss of refunds that are due until compliance is fixed. VAT credit repayments are delayed when returns are not made.
Possible de-registration by HMRC in the future for persistently not following the rules. You still have to pay the tax that’s due.
Avoid fines with help with VAT filing
Expertise is needed to run VAT plans like Flat Rate or Cash Accounting well. Hiring a professional accountant will help you stay in compliance, get the most out of your tax refunds, and avoid fines.
You shouldn’t let a lack of resources or understanding keep you from meeting your VAT filing and payment obligations. If you don’t, you will face harsh penalties. Let experienced accountants handle the forms, fees, and legal advice on how to pay the least amount of VAT possible. Follow the rules and keep your eye on growing your business.