As a small business if your annual taxable turnover exceeds £85,000 in 2018/19 you must register for, charge and pay VAT via quarterly VAT returns that you make to HMRC. As with all tax liabilities failing to adhere to these deadlines and make your payments on time can lead to penalties of up to 15% of the VAT owed on late returns and up to 100% of the tax owed if you submit a return containing errors.
So what can you do to make sure that you submit your VAT returns correctly and on time?
1. Ensure that you are charging the right amount of VAT
In the UK the standard VAT rate is 20%. This is the amount that will be charged on most goods and services, however there are certain items that are either exempt from VAT, outside of the scope of the UK VAT system, or they qualify for a lower rate (5%) of VAT. Ensuring that you charge the correct rate is vital, but this can also be quite complicated especially if your business is within certain sectors. Detailed information can be found on the government’s VAT web pages and in the full list of UK VAT notices.
2. Use the right VAT scheme
There are a number of methods by which you can pay your VAT liabilities and ensuring that you use the right one for your business can help to simplify the process and ensure that you stay on top of your returns:
- Standard VAT accounting method
This involves keeping a detailed record of all VAT paid and charged. Every 3 months this will then be used to calculate and submit your VAT return online to HMRC, and to pay any VAT that is due.
- Annual accounting VAT scheme
This scheme is only available to businesses with an annual turnover of less than £1.35million. You will have to submit just one annual VAT return after which you will make quarterly interim payments for the VAT you estimate that you’ll owe.
- Flat rate VAT scheme
This is designed to simplify VAT for smaller businesses with an annual turnover of under £150,000. In this scheme you simply pay a percentage of your turnover (based on your business and sector) to HMRC to cover your VAT liabilities and you can keep any remaining amount. You still have to charge VAT on your invoices, but don’t have to keep records of each VAT transaction.
- Cash accounting scheme
This scheme allows you to pay VAT only on payments which you have actually received, rather than the total invoices that you have sent, regardless of if you’ve been paid. You still have to complete quarterly VAT returns and the scheme is only open to businesses with a turnover of less than £1.35million.
3. Keep meticulous records
You must keep accurate, complete and readable VAT records for at least 6 years (or 10 years if you use the VAT MOSS service). These can be paper, electronic or held in a software system. The best thing to do is to ensure that all of your VAT-able sales and purchases are accurately recorded as you go along, thus meaning that you can easily supply the figures that you need to complete your VAT return.
4. Sign up for email VAT return reminders
To ensure that you don’t forget to file your VAT return at the end of each quarterly accounting period you can sign up for email reminders from HMRC. Log in to your online account and add your email in the ‘VAT messages’ section.
5. Pay your VAT by Direct Debit
You can sign up to pay your VAT liabilities by Direct Debit via your online VAT account. This will automatically take the appropriate payment from your bank account 3 working days after the payment deadline on your VAT return. This will ensure that your VAT bill will always be paid, but you will still need to submit your quarterly returns before the deadline. If you file your return late payment will be taken 3 working days after the date that your file your return.
However if you still feel that staying on top of your VAT returns will be a problem for you then we would recommend finding a trusted accountant to do these for you. Handpicked Accountants can connect you with a number of thoroughly vetted and reliable accountants in your area who can take the hassle out of submitting your quarterly VAT returns. Contact Handpicked Accountants to find your perfect accountant today.