Businesses must remain compliant with the requirements for reporting and paying VAT, especially with the regular quarterly for VAT under Making Tax Digital.
HMRC’s efforts to maximise tax revenues have intensified, with over 3,000 staff added to its customer compliance units in recent years.
This expansion allows HMRC to open and investigate more cases of unpaid VAT. The estimated tax gap for VAT was £8.8 billion in the 2022/23 tax year, up from £7.6 billion in 2021/22.
Your VAT return must be submitted within one month and seven days following the conclusion of your VAT period. This is also the deadline for all VAT payments. This applies to both those who pay VAT monthly or quarterly payers.
With most people now choosing to report quarterly via their MTD for VAT submission, understanding when to submit information and pay VAT is crucial.
Failure to meet VAT deadlines
If you fail to meet the specified deadline for your business you could face the following consequences:
- Late Submission Penalties: The system for late submission penalties operates on a points-based model. Each time a VAT return is submitted late, a penalty point is accrued. Once the penalty point threshold is reached, a £200 fine is imposed. For every additional late submission at this threshold, another £200 fine is levied. The threshold varies for different accounting periods, including monthly, quarterly, and annual schedules.
- Late Payment Penalties: If a VAT payment is delayed by more than 15 days, a first penalty is issued. This penalty increases if the payment exceeds 30 days overdue, and a second penalty is also imposed.
Tax compliance strategies for businesses
VAT is complex, with varying rates and liabilities across different tax jurisdictions, so businesses must be fully aware and understand their obligations to increase the chances of avoiding errors.
Automated systems can reduce the likelihood of errors and ensure compliance with various tax rates and regulations.
Conduct regular internal reviews and audits to ensure VAT records are accurate and up to date.
This proactive approach can identify and rectify discrepancies before they attract HMRC’s attention.
Stay informed on changes
Businesses should make sure they keep up to date with changes in VAT legislation, especially with the impending implementation of e-invoicing rules from 2024 in the EU.
These changes will require businesses to issue, deliver, and receive electronic invoices, facilitating easier detection of underpayments by tax authorities.
Plan for deadlines
Mark all relevant tax deadlines in your calendar and plan accordingly. Ensure that all necessary documents and payments are prepared well in advance to avoid last-minute rushes and potential errors.
Engage with HMRC
If uncertainties or issues arise, engage proactively with HMRC. Open communication can often lead to more favourable outcomes than avoidance or delayed responses.
HMRC offers support for businesses unable to pay their entire VAT bill. These businesses may arrange a payment plan to settle their bill in instalments.
Post 31 December 2023, if a business proposes a payment plan within 15 days of the due date and HMRC accepts it, they will not incur a late payment penalty, as long as they adhere to the plan’s terms.
Late payment penalties may still apply if proposals are made after the initial 15 days, but agreeing to a payment plan can prevent these penalties from increasing.
Our expert team of accountants have a deep understanding and experience of handling VAT returns and ensuring that our clients are kept informed. If you would like more guidance on how to implement your VAT payment strategies, please contact us today.
