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VAT deadlines and penalties for businesses

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Sumit Agarwal Sumit Agarwal 03 May 2024 VAT return

VAT deadlines and penalties for UK businesses

As a business owner, navigating the complex world of VAT can be a daunting task. From understanding the deadlines for submitting returns to ensuring you avoid costly penalties, it's crucial to stay on top of your VAT obligations. In this comprehensive guide, we'll explore the key VAT deadlines and penalties that businesses in the UK need to be aware of.

Whether you're a small startup or a well-established enterprise, this blog will provide you with the essential information you need to stay compliant and avoid the headaches that can come with VAT-related issues. From monthly and quarterly return deadlines to the consequences of late payments, we'll cover it all in a straightforward and easy-to-understand manner.

By the end of this guide, you'll have a clear understanding of the VAT landscape and the steps you can take to keep your business on the right side of the law.

VAT deadlines for businesses

Businesses must be aware of critical VAT deadlines to avoid penalties. For monthly and quarterly VAT returns, the deadline is one calendar month and seven days after the end of the VAT period. Payments must have cleared HMRC's account by this date.

Businesses using the annual accounting scheme have different deadlines, requiring advance VAT payments and a single annual return. Importantly, deadlines vary based on the payment method used, with same-day or next-day payments having different clearance times than standard payments. Businesses must account for weekends and bank holidays when making VAT payments to ensure they meet the required deadlines.

Monthly and quarterly VAT returns

Businesses in the UK are required to submit VAT returns and make payments to HMRC (HM Revenue and Customs) on a regular basis, either monthly or quarterly. The deadlines for these VAT obligations are crucial for businesses to understand and adhere to, to avoid potential penalties and interest charges.

Deadline for submitting VAT returns

For businesses that file VAT returns on a monthly or quarterly basis, the deadline for submitting the return is one calendar month and seven days after the end of the VAT period. This means that if your VAT period ends on the 31st of March, your VAT return must be submitted to HMRC by the 7th of May.

It's important to note that the deadline applies to the submission of the VAT return, not just the payment. Businesses must ensure that they complete and file their VAT return with HMRC by the due date, regardless of whether the payment has been made or not.

Deadline for making VAT payments

In addition to submitting the VAT return, businesses must also make the corresponding VAT payment to HMRC by the same deadline. The payment must have cleared HMRC's account by the due date, which is one calendar month and seven days after the end of the VAT period.

This means that if your VAT period ends on the 31st of March, not only must you submit your VAT return by the 7th of May, but the payment must also have cleared HMRC's account by that date. Businesses should factor in the time it takes for the payment to be processed and cleared, as this can vary depending on the payment method used.

Consequences of Missing the Deadlines

Failing to submit a VAT return or make a VAT payment by the due date can result in significant penalties and interest charges from HMRC. Businesses that miss the deadlines may face:

  1. Late submission penalties: Businesses can be charged a penalty for each late VAT return submission, with the penalty amount increasing for repeated offenses.

  2. Late payment penalties: Businesses that make their VAT payment after the due date may be subject to late payment penalties, which can be a percentage of the outstanding amount.

  3. Interest charges: HMRC will also charge interest on any late VAT payments, starting from the original due date until the payment is received.

To avoid these consequences, businesses must have a robust system in place to ensure that VAT returns are submitted, and payments are made, by the relevant deadlines. This may involve setting reminders, automating the process, or seeking the assistance of a professional accountant or tax advisor.

By understanding and adhering to the VAT return and payment deadlines, businesses can maintain compliance with HMRC's requirements, avoid unnecessary penalties and interest charges, and focus on the growth and success of their operations.

Annual VAT returns

Businesses that use the Annual Accounting Scheme for VAT have a different set of deadlines compared to those on the standard quarterly or monthly VAT return cycle. Under the Annual Accounting Scheme, businesses must make advance VAT payments throughout the year and then submit a single annual VAT return.

Advance VAT payments

Businesses on the Annual Accounting Scheme are required to make advance VAT payments to HMRC on a monthly or quarterly basis. The amount of each advance payment is typically based on the business's previous year's VAT liability, divided into equal installments.

The deadlines for making these advance payments are:

  1. Monthly payments: Due by the 19th of each month
  2. Quarterly payments: Due by the 19th of the month following the end of each quarter (April, July, October, January)

Businesses need to ensure these advance payments are made on time to avoid late payment penalties from HMRC.

Annual VAT return

In addition to the advance payments, businesses on the Annual Accounting Scheme must also submit a single annual VAT return. This annual return covers the entire 12-month accounting period, rather than the standard quarterly or monthly returns.

The deadline for submitting the annual VAT return is:

  1. Annual VAT return: Due by the last day of the 2nd month following the end of the 12-month accounting period.

For example, if a business's accounting period runs from April 1 to March 31, its annual VAT return would be due by the last day of May.

Advantages of the Annual Accounting Scheme
The Annual Accounting Scheme can offer several benefits for eligible businesses:

  1. Simplified reporting: Businesses only need to submit one annual return instead of filing multiple VAT returns throughout the year.

  2. Improved cash flow: The ability to make advance payments in smaller, more manageable installments can help businesses better manage their cash flow.

  3. Reduced compliance burden: With fewer deadlines to keep track of, the Annual Accounting Scheme can help reduce the administrative burden for businesses.

Eligibility and opting in

To be eligible for the Annual Accounting Scheme, a business must have an annual VAT taxable turnover of £1.35 million or less. Businesses can apply to join the scheme by applying to HMRC. Once accepted, the business will be required to remain in the Annual Accounting Scheme for at least 12 months before it can opt out. Businesses can choose to leave the scheme at any time after the initial 12-month period by notifying HMRC.

Staying compliant

While the Annual Accounting Scheme can simplify VAT reporting for eligible businesses, ensuring that all advance payments and annual returns are submitted on time is still crucial. Failure to do so can result in late payment penalties and other enforcement actions from HMRC.

Businesses should carefully track their VAT liabilities and payment deadlines, and consider working with a qualified accountant or VAT specialist to ensure they comply with the scheme's requirements.

Deadlines for different VAT payment methods

When it comes to paying your VAT bill, the payment method you choose can impact the clearance time and affect whether your payment is considered on time. Businesses need to understand the different deadlines and requirements for various payment options.

Same day and next day payments

Payments made using same-day or next-day methods have faster clearance times compared to standard bank transfers. This is important to keep in mind, as HMRC considers your payment to be received on the date the funds clear their account, not the date you initiated the transfer.

Same-Day Payments:

  • Examples include Faster Payments, CHAPS, and Bacs Same Day

  • Funds typically clear HMRC's account on the same business day

  • Ensure payment is made early enough to clear by the 11:59 pm deadline

Next-Day Payments:

  • Examples include standard bank transfers and Direct Debit

  • Funds may take 1-3 business days to clear HMRC's account

  • Payment must be initiated early enough to clear by the deadline

To ensure your VAT payment is received on time, it's crucial to account for the clearance time when choosing your payment method. Same-day options provide the most flexibility, but you'll need to initiate the transfer well before the 11:59 pm deadline to guarantee it clears in time.

Weekends and bank holidays

Another important consideration is how weekends and bank holidays impact VAT payment deadlines. HMRC's offices are closed on these days, so any payments initiated during that time will not be processed until the next working day.

If your VAT payment is due on a weekend or bank holiday, you'll need to make the payment early to ensure it clears HMRC's account by the deadline. For example:

  • If your VAT return is due on a Monday, you'll need to initiate the payment the previous Friday to allow time for it to clear.

  • If your return is due on a Tuesday following a bank holiday Monday, you'll need to pay several days in advance to meet the deadline.

Failing to account for these non-business days can result in your payment being considered late, even if you initiated the transfer before the due date. It's crucial to plan and give yourself enough time for the funds to clear HMRC's account, especially when dealing with bank holidays or weekends.

Staying on top of deadlines

To avoid late payment penalties, businesses should:

  • Understand the clearance times for different payment methods

  • Initiate same-day payments well before the 11:59 pm deadline

  • Allow extra time for weekends, bank holidays, and other non-business days

  • Set reminders and calendar alerts to ensure VAT payments are made on time

By being proactive and planning, you can ensure your VAT payments are received by HMRC before the due date, helping you steer clear of costly penalties and interest charges.

Late VAT return submissions

Submitting your VAT returns on time is crucial for businesses in the UK. HMRC has implemented a penalty point system to encourage compliance and ensure businesses meet their VAT obligations. Understanding this system can help you avoid costly penalties and stay on top of your VAT responsibilities.

The penalty point system explained

The penalty point system works as follows:

  1. point per missed deadline: Businesses receive 1 penalty point for each VAT return that is submitted late, regardless of the length of the delay.

  2. Thresholds for penalties: The number of points that can accrue before penalties are charged varies depending on the frequency of your VAT returns:

    • Annual VAT returns: 2 points before penalties are applied

    • Quarterly VAT returns: 4 points before penalties are applied

    • Monthly VAT returns: 5 points before penalties are applied

  3. Once a business reaches the relevant threshold, they will be charged a penalty for each subsequent late submission.

Appealing penalty points

It's important to note that penalty points can be appealed if you have a reasonable excuse for the late submission. A reasonable excuse is a situation or circumstance that is beyond your control and prevents you from meeting the deadline.

Some examples of reasonable excuses include:

  • Unexpected life events: Serious illness, bereavement, or other personal emergencies that prevented you from submitting the return on time.
  • Technical issues: Problems with your accounting software or internet connection that made it impossible to file the return electronically.
  • Incorrect HMRC information: If HMRC provided you with incorrect information that led to the late submission.

To appeal a penalty point, you'll need to provide HMRC with evidence of your reasonable excuse. This could include medical documentation, records of technical issues, or correspondence with HMRC. HMRC will then review your case and determine whether the penalty point should be removed.

Tips for staying on top of VAT return deadlines

The best way to avoid penalty points is to ensure that you submit your VAT returns on time, every time. Here are some tips to help you stay on top of your VAT obligations:

  1. Set reminders: Use your calendar, accounting software, or other tools to set reminders for your VAT return deadlines. This will help you stay organised and avoid missing a submission.

  2. Automate the process: Consider using accounting software or a VAT return service that can automate the process of preparing and submitting your VAT returns. This can help reduce the risk of human error and ensure timely submissions.

  3. Communicate with HMRC: If you anticipate any issues with meeting a deadline, reach out to HMRC as soon as possible. They may be able to provide guidance or assistance to help you avoid a late submission.

  4. Keep accurate records: Maintain detailed records of your business's financial transactions and VAT-related information. This will make it easier to prepare and submit your VAT returns accurately and on time.

By understanding the penalty point system and taking proactive steps to manage your VAT obligations, you can avoid the stress and financial consequences of late VAT return submissions.

Penalties for late VAT payments

Paying your VAT bill on time is crucial for businesses in the UK. If you miss the deadline or pay late, you can face a range of penalties and interest charges from HM Revenue & Customs (HMRC). Understanding these late payment penalties is important to avoid unexpected costs and stay compliant.

Penalties for payments 16-30 days late

If you pay your VAT bill between 16 and 30 days after the due date, you'll face an immediate penalty. This penalty is 2% of the outstanding VAT amount.

For example, if your VAT bill is £10,000 and you pay it 20 days late, you'll owe an additional £200 penalty to HMRC.

Penalties for payments over 30 days late

The penalties get more severe the longer you're late with your VAT payment. After 30 days, the penalty increases to 5% of the outstanding amount.

So, if you pay your £10,000 VAT bill 40 days late, you'll face a 5% penalty, which is £500.

Daily penalties for prolonged late payments

In addition to the initial late payment penalties, HMRC can also charge daily penalties if your VAT payment is extremely late. These daily penalties start at 1% of the outstanding amount and can increase over time.

For example, if you're 2 months late paying a £10,000 VAT bill, you'd owe:

  • Initial 5% penalty: £500

  • Daily penalties (60 days at 1%): £600

  • Total penalties: £1,100

Interest charges on late payments

On top of the penalties, HMRC will also charge interest on any late VAT payments. This interest is calculated from the original due date of the VAT bill up until the date you make the payment.

The current interest rate for late VAT payments is 2.5% per year. So, if you're 2 months late paying a £10,000 VAT bill, you'd owe around £50 in interest charges.

Avoiding late payment penalties

The best way to avoid these penalties is to make sure you pay your VAT bill on time every quarter. Set reminders, plan your cash flow, and pay a few days early if possible to give the payment time to clear.

If you're struggling to pay, contact HMRC as soon as possible. They may be able to set up a Time to Pay arrangement to help you spread the payments over a longer period and avoid penalties.

Staying on top of your VAT obligations is crucial for any UK business. By understanding the penalties for late payments, you can ensure you don't face any unexpected costs and remain fully compliant with HMRC.

Avoiding VAT penalties

By maintaining accurate records, filing on time, and proactively communicating with HMRC, businesses can steer clear of costly VAT penalties.

Ensure accurate record keeping

Proper record-keeping is the foundation for avoiding VAT-related penalties. Businesses must meticulously track all VAT-related transactions, including sales, purchases, and any adjustments. This includes:

  • Invoicing customers with the correct VAT rate

  • Obtaining and retaining valid VAT invoices from suppliers

  • Accurately calculating the VAT owed on sales and deductible VAT on purchases

  • Maintaining detailed records of all VAT related activities

Maintaining accurate and up-to-date records not only helps businesses comply with VAT rules but also makes the process of filing returns much smoother. Inaccurate or incomplete records can lead to errors in VAT calculations, which can trigger penalties from HMRC.

File VAT returns and payments on time

Businesses must be vigilant about meeting VAT deadlines for submitting returns and making payments. The standard deadlines are:

Monthly and quarterly VAT returns: One calendar month and seven days after the end of the VAT period

Annual VAT returns: Deadlines vary for businesses on the Annual Accounting Scheme Failing to submit a VAT return by the due date can result in penalty points, which can accumulate and lead to financial penalties. Similarly, late VAT payments will incur interest charges and potentially late payment penalties.

To avoid these issues, businesses should:

  • Set calendar reminders for upcoming VAT deadlines

  • Ensure they have sufficient funds to make VAT payments on time

  • Consider setting up direct debit payments to automatically fulfill VAT obligations

Approach HMRC for time to pay agreements

If a business is unable to make a VAT payment by the due date, it's crucial to proactively communicate with HMRC. Businesses can apply for a Time to Pay (TTP) arrangement, which allows them to spread the payment over an agreed-upon period.

To qualify for a TTP agreement, businesses must:

  • Demonstrate they are unable to pay the full amount by the deadline

  • Provide a realistic proposal for repaying the outstanding VAT

  • Commit to making all future VAT payments on time

Securing a TTP agreement can help businesses avoid late payment penalties and interest charges, as long as they adhere to the agreed-upon repayment plan. Failing to comply with a TTP arrangement can lead to the agreement being revoked and penalties being reinstated.

Correct errors promptly

Even with the best efforts, mistakes can sometimes occur in VAT calculations or reporting. When errors are identified, it's essential to correct them promptly to avoid potential misdeclaration penalties.

Businesses should:

  • Thoroughly review VAT returns before submission to catch any errors

  • Notify HMRC immediately if an error is discovered, either before or after filing

  • Work with HMRC to rectify the issue and make any necessary adjustments or payments

By taking a proactive approach to VAT compliance, businesses can minimise the risk of penalties and maintain a positive relationship with HMRC.

If the thought of navigating the complex world of VAT deadlines and penalties feels daunting, you're not alone. Keeping track of the various due dates, payment methods, and potential consequences can be a significant burden for busy business owners. Fortunately, you don't have to tackle these VAT-related challenges on your own.

dns accountants, a trusted provider of VAT services, can help you stay compliant and avoid costly mistakes. Our team of expert VAT accountants will handle the paperwork, ensure timely submissions, and guide you through the intricacies of HMRC's penalty regime. By outsourcing your VAT obligations to dns accountants, you can focus on running your business, confident that your VAT affairs are in capable hands.

Don't let the stress of VAT compliance weigh you down - let the experts at dns accountants take care of it. Contact us today at 033 0088 3616, email contact@dnsaccountants.co.uk, or book a free consultation for expert assistance. Let us simplify your VAT return filing process and ensure compliance with HMRC regulations, allowing you to focus on growing your business with peace of mind.

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About the author

Sumit Agarwal
Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants