VAT registered businesses act as unpaid tax collectors and are required to account both promptly and accurately for all the tax revenue collected by them. It is important to remember the money your recieve for VAT you charge is not your own. A situation we, as accountants, encounter far too often is when money which will be due to HMRC is used for general business purposes. Then, when it comes to quarterly VAT payments, there may not be enough funds to pay. HMRC can be very aggressive in pursuing outstanding VAT and delayed payment surcharges can be very expensive. Far better to treat VAT as not your business money.
The VAT system is policed by HMRC with heavy penalties for breaches of the legislation. Ignorance is not an acceptable excuse for not complying with the rules.
Registration – is it necessary?
You are required to register for VAT if the value of your taxable supplies exceeds a set annual figure (£85,000 from 1 April 2017). The government has announced that the
VAT registration threshold will be frozen at £85,000 for two years from 1 April 2018.
If you are making taxable supplies below the limit you can apply for voluntary registration. This would allow you to reclaim input VAT, which could result in a repayment of VAT if your business was principally making zero rated supplies.
Once registered you must make a quarterly return to HMRC showing amounts of output tax to be accounted for and of deductible input tax together with other statistical information. All businesses have to file their returns online.
Returns must be completed within one month of the end of the period it covers, although generally an extra seven calendar days are allowed for online forms.
Electronic payment is also compulsory for all businesses.
Businesses who make zero rated supplies and who receive repayments of VAT may find it beneficial to submit monthly returns.
Businesses with expected annual taxable supplies not exceeding £1,350,000 may apply to join the annual accounting scheme whereby they will make monthly or quarterly payments of VAT but will only have to complete one VAT return at the end of the year.
It is important that a VAT registered business maintains complete and up to date records.
This includes details of all supplies, purchases and expenses. In addition a VAT account should be maintained. This is a summary of output tax payable and input tax recoverable by the business. These records should be kept for six years.
Inspection of records
The maintenance of records and calculation of the liability is the responsibility of the registered person but HMRC will need to be able to check that the correct amount of VAT is being paid over. From time to time therefore a VAT officer may come and inspect the business records. This is known as a control visit.
The VAT officer will want to ensure that VAT is applied correctly and that the returns and other VAT records are properly written up.
Offences and penalties
HMRC have wide powers to penalise businesses who ignore or incorrectly apply the VAT regulations. Penalties can be levied in respect of the following:
• late returns/payments
• late registration
• errors in returns.
To avoid financial penalties it is crucial that you complete and send your VAT returns on time. But if you choose our VAT returns service you don’t need to worry – we will go through your records and work out what you owe. We’ll also send you a reminder each quarter when the time comes to submit your returns again.