U.K. VAT returns

A value added tax (VAT) return is how a VAT-registered business informs His Majesty’s Revenue and Customs (HMRC) how much VAT it has charged and paid.

Businesses must typically send a VAT return to HMRC every three months (this period is the accounting period).

A VAT-registered business must include the following information within a VAT invoice when making taxable sales:

• Unique identification number

• Business name and address

• Business contact information

• Name and address of the customer being invoiced

• Description of goods and services being invoiced for

• Date the goods or service were provided (supply date)

• Date of the invoice

• Amount being charged

• Amount of VAT applicable

• Total amount owed

VAT-registered businesses must include in their VAT returns: their total sales and purchases, the amount of VAT the business owes to HMRC, the amount of VAT the business can reclaim, and the amount of VAT the business is owed from HMRC if reclaiming VAT on business expenses.

Businesses must submit a VAT return even when there is no VAT to pay (known as a ‘nil VAT return’), or when they’re not attempting to reclaim VAT from HMRC.

A VAT-registered business must submit a VAT return using accounting software that’s compatible with Making Tax Digital (MTD). HMRC has a list of software that businesses can check for compatibility with MTD.

The deadline for submitting a return online is usually one calendar month and seven days after the end of an accounting period.

This is also the same deadline businesses have for paying what is owed to HMRC.

HMRC could tell a business to make ‘payments on account’ — advance payments towards the business’s VAT bill — if the business sends VAT returns quarterly and owes more than £2.3 million in any period of 12 months or less.

HMRC will determine the installments to be paid based on the business’s annual VAT liability in the period the business exceeded the threshold. The payments on account cycle starts in the first quarter after the business exceeds the threshold.

VAT-registered businesses will be assigned to a ‘VAT stagger group’. This group determines the month in which VAT quarters end and when payments and VAT returns are due for submission. HMRC bases the amount of the business’s payments during the annual cycle on its liability in the period known as the ‘reference year’.

The three stagger groups are as follows:

The due dates for payments on account are the last working day of the second and third months of every VAT quarter.

HMRC will remove a business from its payments on account arrangement if the business’s VAT liability falls below £2.3 million in its reference year.

In addition to declaring sales or output VAT in the U.K. return, companies can offset this by the corresponding input VAT or purchase VAT. There are some exceptions, including:

• Goods and services obtained prior to registration

• Cars (except when used wholly for business purposes)

• Business entertainment expenses (except expenses relating to overseas customers)

• Goods and services not used for business purposes

  
  

Excess input VAT is submitted in the VAT return for the period. Subject to any investigations taking place, HMRC will normally make a payment within 30 days of a return being submitted.

Businesses must pay their bill by the deadline on their VAT return. Bills can be paid to HMRC online. Businesses will need their nine-digit VAT number to approve a VAT payment to HMRC though their bank using their online banking details or corporate credit card.

Penalties may be issued for late payment.

Businesses can make advance VAT payments towards their VAT bill by using the Annual Accounting Scheme: if a business’s estimated taxable turnover is £1.35 million or less, they can submit a one-year VAT return based on their last return, or an estimate if the business is yet to submit a VAT return.

Businesses may have to pay penalties for submitting VAT returns after their deadline or for paying VAT bills late. The size and severity of the penalty is determined by the lateness of the submission and the amount of VAT owed to HMRC. Businesses can also be penalised for not submitting a nil VAT return.

Foreign businesses can also be subject to penalties.

Failure to register for VAT (failure to notify HMRC within 30 days of becoming liable to register for VAT) will trigger a penalty of up to 100% of the VAT that would have been due during the unregistered period of trading.

Penalties for failure or delay in submitting VAT returns take the form of a surcharge imposed by HMRC, which is calculated as a percentage (up to 15%) of the unpaid VAT.

Incorrect or inaccurate returns can also be subject to penalties, in the form of surcharges calculated as a percentage (up to 100%) of the lost revenue.