Being ready for VAT returns is vital to the success of your business, especially if you have tax arrears and don’t have the funds to cover the fines. Reda more about tax laws on VATGlobal. VAT returns deadline is one calendar month and a week after the accounting period. VAT returns are filed online through the HMRC portal and while the tax authority might give you a grace period if it’s your first late payment within 12 months, chances are you are still going to get significant penalties.
Smaller businesses (those that have a turnover of less than £150,000) do tax fines, but it is the bigger companies that face the real deal. No surcharge is made with the first default, but the second, third, fourth, and so on, will incur substantial penalties. To learn more about tax arrears penalties, you can go here.
Well, there are numerous reasons on why you could face tax arrears penalties including:
- Failing to register or registering late
- Filing late returns
- Late payment on the return amount
- Paying the wrong late of value-added tax on goods.
If you are late on paying the amount on the return, it is advisable to contact the HMRC as soon as possible to negotiate a time to pay.
Value Added Tax Returns – Have You Registered?
As mentioned above, failing to register for VAT is one of the reasons that attract tax penalties. Most small businesses don’t register as they deem their company small enough to not qualify. However, this is not what the tax authority thinks and they will continue to calculate your bill and put it into arrears.
To avoid a potentially increasing debt or surprises, it is advisable to contact the HMRC and discuss the following:
- Reasons you can’t pay your debt
- What you can do in order to start making payments
- An estimate of the period for repayments
- Whether you can make an instant payment
It is crucial to keep in mind that sole traders also need to submit quarterly value added tax returns, and any debt will be deemed personal. As such, the debt is subject to possible seizure and in worst case scenario, a petition.
So, What Should You Do to Prepare for VAT Returns?
Well, you must file accurate returns and this is where a bookkeeper and an accountant come into the picture. Most accounting applications will fill the database in advance to make the returns task much easier. However, if you are still struggling, it is advisable to consult a reputable accountant as the wrong information could lead to tax penalties and even trigger a tax inspection. If you are experiencing cash flow issues, seek insolvency advice so that you can save your company.
When it comes to staying ahead of the VAT returns deadline, you can use the following tips:
Charge the Right Amount of VAT
Making sure that you charge the right rate on goods or services is crucial. The standard VAT rate in the United Kingdom is 20% and will be charged on most products. However, there are exceptions to this rule, including assets eligible for lower value-added tax and products that are outside the scope of the country. The 20% is a general rule of thumb and should do your research to find more about UK VAT rates.
Use the Proper VAT Scheme
There are a number of ways to pay VAT liabilities but is imperative to pick the right one to ensure you stay on top of the tax returns. Then various schemes include:
- Standard VAT Scheme
You should keep a record of all VAT charged and paid, and in every 3 months, the HMRC will use this data to calculate your returns.
- Flat Rate VAT Scheme
This is the best scheme for businesses with a turnover of less than £150,000. Here, you pay a certain percentage of the turnover in order to cover tax liabilities. The good thing is that you are not required to keep all value-added tax transactions records.
- Annual VAT Scheme
This is a method that’s available for companies with a turnover of less than £1.35 million. Just one annual return is submitted and from there, you’ll make quarterly interim payments on the estimates that you owe.
- Cash Accounting Method
This one involves paying value added tax on sales when consumers pay, and reclaiming the VAT on purchases when you are paying the suppliers.
If you are not certain which scheme is the best for your company, you may want to seek guidance from an accountant. Remember that if you miss payments, you are bound to pay fines.
Pay by Direct Debit
One of the best debt management tips is that you should always pay your returns via direct debit. The tax authority will automatically charge the amount from your bank within 3 working days of the deadline, ascertaining that your VAT bill is always covered. Of course, you will need to submit your quarterly returns and filing late will delay the payment, but paying via direct debit makes things less stressful.
To ensure the longevity of your business, it is always advisable to keep VAT records for at least 6 years and ensure that they are precise and readable. Recording all purchases and sales is one of the best ways to protect your business. If you ever face liquidation or need insolvency advice, these documents will help prove that you acted in the best interest of the business.
With the tips mentioned in this post, you can be certain that you’ll always be on top of your VAT returns.