VAT 101
VAT is an indirect tax levied by VAT registered businesses on things like:
- Business sales - for example when you sell goods and services
- Hiring or loaning goods to someone
- Selling business assets
- Commission
- Items sold to staff - for example canteen meals
- Business goods used for personal reasons
- ‘Non-sales’ like bartering, part-exchange and gifts
If you’re a VAT-registered business you must report to HM Revenue and Customs (HMRC) the amount of VAT you’ve charged and the amount of VAT you’ve paid. This is done through your VAT Return which is usually due every 3 months dependent on the VAT scheme your business is registered for.
There are penalties for paying late!
A late VAT payment may result in a 12 month surcharge period. This means if you default again, penalties start to become due according to the following table:
| Defaults within 12 months | Surcharge if annual turnover is less than £150,000 | Surcharge if annual turnover is £150,000 or more |
|---|---|---|
| 2nd | No surcharge | 2% (no surcharge if this is less than £400) |
| 3rd | 2% (no surcharge if this is less than £400) | 5% (no surcharge if this is less than £400) |
| 4th | 5% (no surcharge if this is less than £400) | 10% or £30 (whichever is more) |
| 5th | 10% or £30 (whichever is more) | 15% or £30 (whichever is more) |
| 6 or more | 15% or £30 (whichever is more) | 15% or £30 (whichever is more) |
MTD has implications for submissions
MTD mandates that from April 2019, all VAT regsitered businesses will have to submit VAT returns digitally, instead of through paper submissions or through the governements current VAT portal (Government Gateway) online. This means that businesses need to ensure their accounting software can handle digital submissions from this date.