Unless a business is in trouble with HMRC or receives regular repayments of VAT, they are normally required to send in quarterly VAT returns. It is now mandatory for both the VAT return and the payment to be made electronically, and payments must be received by HMRC (not just sent) seven days after the end of the month following the end of the VAT period. So if your VAT return period ends on 31 October, HMRC must have your return and payment by 7 December.
Electronic payments can be made by Direct Debit, Faster Payments by internet/telephone banking, CHAPs, BACS Direct Credit, Online debit or credit card using BillPay and payment by Bank Giro Credit.
Tip:
The best way to ensure that payments are made on time is to set up a Direct Debit to pay your VAT return. Payments are automatically taken from your account, and all you have to do is make sure your VAT return is submitted on time.
Trap:
The other payment methods require your intervention and a knowledge of the processing times for payments to go through – a quick look at the number of tribunal cases involving this problem will you tell how common it is!
Make sure you have the money
Many businesses have difficulty scraping together enough money at the end of the VAT quarter to pay their VAT return. One way to make sure you have the money is to work out your output tax each month and how much input tax you can claim, and then net the amount off so you know your liability. Transfer the money into a savings account, so that you have the money available to pay HMRC.
It takes discipline to do this, but it is worth it, and it can also be done with your corporation tax so that you don’t get a nasty bill at the end of the year.
Tip:
If your turnover is less than £1,350,000 per annum, you can use cash accounting so that you only have to account for the VAT on your sale when you get paid; you get automatic bad debt relief and don’t have to pay the VAT on money you haven’t received.
Spread payment with annual accounting
If your turnover is less than £1,350,000 you can use annual accounting. This allows you to pay monthly instalments to the VAT man based on the previous year’s VAT liability. After making nine monthly payments, each of 10% of the estimated liability, the VAT return with a final balancing payment of the actual VAT due has to be paid when the annual VAT return is submitted. The return has to be submitted two months after the end of the period, rather than the normal one month.
If you think the VAT you owe is going to be significantly more or less than the estimated amount you can write to the VAT man and ask to have the level of the instalments changed, so that you don’t either overpay or end up with a big bill at the end of the year.
Can’t pay on time?!
If you can’t pay on time, contact HMRC’s Business Payment Support Service and arrange a payment schedule, and in so doing avoid any penalties for late payments.
Practical Tip:
Make sure you pay your VAT on time to avoid penalties, and take advantage of the systems and good housekeeping points available to make sure you have the funds available to pay HMRC at the end of the quarter.
