If you’re an entrepreneur based outside the United Kingdom, chances are that you’re wondering how and when to pay your VAT dues. Failure to pay your VAT bill on time could result in late payments and fines on your business.
This article will take you through VAT payments in the UK, how to obtain your VAT number from HMRC and make VAT payments. As HMRC continues its push to digitise the tax system, it is important to have access to key resources to enable you to register, apply and pay for VAT in the UK. This will allow you to focus on the fun part of keeping your customers happy.
Table of Contents
According to the legislation, UK traders with sales (turnover) above the VAT level must register for VAT and charge it on deliveries of goods or services, as stated below. The VAT is collected by the business, which subsequently pays it to HM Revenue & Customs (HMRC), the government’s tax collection agency. Traders with sales below the VAT threshold are not required to register for VAT (though they may do so freely); hence not all traders must be VAT-registered.
VAT is charged at a regular rate of 20%. Certain items are taxed at a lesser rate, such as children’s apparel, which is charged at 0%, while household fuel, such as gas and electricity, is taxed at 5%. Not all businesses are liable to pay for VAT. VAT payments are determined by the amount of turnover or sales from a business, however businesses can voluntarily register.
Entrepreneurs or business owners in and out of the UK can register for a VAT number online. This process is fairly straightforward and requires little effort. Otherwise, you may have to complete the VAT1 form, and more information is found on the HMRC website.
The majority of firms are required to file VAT returns on a quarterly basis. You are required to complete and file your VAT five weeks after the relevant period, which tends to be every quarter. A VAT return for the three months ending June 30, 2021, for example, must be submitted by August 7, 2021.
Subsequent VAT returns will be due on the 30th of September 2021, the 31st of December 2021, the 31st of March 2022, and so on. With the implementation of HMRC’s ‘Making Tax Digital’ regime, the way most VAT returns must be completed has recently changed. See What is Making Tax Digital for additional information about filing VAT returns in detail.
Suppose you have difficulty dealing with digital filings, such as if you have a disability or live in a region where broadband is unstable, you may be eligible for an exemption from digital filing of your VAT returns. If this is the case, HMRC should be able to make alternate arrangements for you to file your returns. You can contact HMRC directly to discuss this issue.
Before you set about paying your VAT bill, ensure that the deadline has not passed as you may be liable to fines from HMRC. The deadline for your VAT return is usually shown on your receipt. The different deadlines are the Annual Accounting Scheme, and the payments on accounts and payments have to be made 4 – 5 weeks at the end of the quarter.
There are several ways to pay your VAT bill to HMRC. You may use the online or the telephone banking system or pay through your bank account. Finally, you can equally use the CHAPS system to pay for your VAT bill.
You can find your VAT number in your VAT account or your invoice. After this, you may use the sort code and account number provided by HMRC to make the payment. Furthermore, your payment cannot be completed without the 9-digit registration number found on your VAT account.
If you are registered to the Annual Accounting Scheme, you may pay via standing order. Under this scheme, Businesses who use the Annual Accounting Scheme or pay on the account can set up a standing order to pay their VAT due. Standing orders require three working days to reach the bank account of HM Revenue and Customs (HMRC).
You can make VAT payments through your bank account. Select ‘start a payment’ and then ‘pay by bank account’ after logging into your HM Revenue and Customs (HMRC) account. VAT payments can be made online via your bank account with the relevant account information provided by HMRC. The transfer tends to happen immediately, but it can take up to two hours for it to appear in your account.
If you are paying VAT from another country, it is best to set up a direct debit and use online or telephone banking to make sure that you pay your VAT bill on time. This sill avoids late-payment fines and ensures your tax affairs are in order.
When registering for a VAT number, you can request to pay by standing order in the application form. Once HMRC notifies you of your application, you can inform them of your preference to use standing orders using the VAT 622 form.
VAT-registered firms who earn over £85,000 are required to follow the ‘Making Tax Digital for VAT’ rules. These rules stipulate that you keep digital records. For example, cloud services enable you to access your data easily.
If you are a foreign business, you are required to keep digital records for about six to ten years. If you use the VAT MOSS service, you should keep your record for ten years. This will ensure that you can refer to them at any point in time, if necessary.
Disclaimer: Some of the information above may change or update after we have published this article. Please refer to the HMRC website .gov.uk for further information.