All you need to know about HMRC vat online and changes


Each quarter, a Value added tax (VAT) return needs to be submitted to HM Revenue and Customs (HMRC) to provide information regarding input and output VAT. A VAT return comprises of the following:

· Total of sales and purchase during a quarter

· Amount of payable VAT

· Amount of VAT eligible for refund

Even if no VAT amount is due, a return needs to be filed with HMRC. Apart from the quarterly VAT returns, a final return needs to be submitted to HMRC comprising of information for the entire financial year. This can be easily done using the online VAT account. However, in case of bankruptcy, HMRC will send a paper version of the VAT return that needs to be completed. In order to submit an online VAT return, it is imperative to register for HMRC’s online service and enrol for online services applicable for VAT. To use the online services, a business can log into and follow the instructions to access or edit the required details.

Submitting VAT return online

A user must submit VAT returns online except:

· When the business is under discussion of insolvency — If such a situation arises, a limited company can opt for a Company Voluntary Arrangement (CVA) through which it can pay back the creditors depending on the time period decided mutually. The company also has an option to continue trading if the creditors permit

· When the business opposes the use of computer (basis religious grounds)

· When online services can’t be accessed or used due to age, some disability or restricted internet access

Due to some other reasons if a business fails to submit the returns online, they can log contact HMRC VAT enquires helpline to get additional details regarding how to proceed further. Each business needs a VAT number and online account to submit the return online.

To use the online VAT services, a user needs to complete the online enrolment process once. Initially, when businesses register for the online VAT services, they are given a User ID and as a requisite need to generate a password. Upon completion of the enrolment process, businesses can set up an e-mail reminder regarding the next online VAT return. Once a user has registered for VAT services online, HMRC will automatically send activation PIN through postal service (this PIN should be used within 28 calendar days, post the date of issue). To register for online VAT services, following information must be kept handy:

· VAT registration number

· Primary business place postcode

· VAT registration date

· Previously filed VAT return

· Payable VAT amount

Surcharges and Penalties

Businesses may be fined if VAT returns are not submitted in accordance to the HMRC guidelines. According to HMRC, the following activites may call for penalties:

· Filing VAT returns after the due date

· Actual VAT amount not paid while filing the return

For the accounting period, surcharge is computed as a percentage of the outstanding VAT amount. In case a business defaults again, the rate of surcharge rate increases with each case of default recorded. The percentage of surcharge is as follows:

Number of incidences : Applicable surcharge if annual revenue is below £150,000 : Applicable surcharge if annual revenue is £150,000 or above

No surcharge
2% surcharge is due if amount is less than £400

2% surcharge is due if amount is less than £400
5% surcharge if due if amount is less than £400

5% surcharge is due if amount is less than £400
10% surcharge or £30 (either is higher)


10% or £30 (either is higher)
15% or £30 (either is higher)

6 or more
15% or £30 (either is higher)
15% or £30 (either is higher)


There are a few exceptions and no surcharge is pertinent if a late VAT return is submitted and:

· there is no tax payable

· a VAT refund is due


HMRC can charge penalties upto:

· 100% of tax amount under-stated or over-claimed

· £400 if a paper VAT return is submitted (except if HMRC has stated that the business is excused from submitting an online return)

VAT flat rate changes 2017

Starting 1 April 2017, important changes took place under the Flat Rate VAT Scheme. As per the modifications, there will be alterations, disturbing businesses with a low-cost base and such businesses will be categorised as ‘limited cost traders’ if spending is:

· less than 2.0% of the VAT inclusive revenue in an accounting period

· in excess of 2.0% of the VAT inclusive revenue but less than £1000 for a year

Goods are defined as material not including:

· any services

· expenses with regards to travel and accommodation

· food and drink consumed by management or employees

· accounting fee / phone bill / broadband charges / rental

· donations / promotional items

· cost of vehicle including fuel except an individual is in the transport business

· goods for reselling or sub-leasing

· office equipment / laptops / desktop / IT infrastructure / mobile phones / tablets

This new measure will boost the VAT payable for businesses that are more labour-intensive and spend little on goods. For examples, IT contractors, specialist and construction workers. In order to ensure that the transition to the new 16.5% Flat Rate is accurate, legislation was made available in November 2016 to prevent businesses from raising invoices or receiving payments preceding 1 April 2017 for services made available post 1 April. As a matter of fact, any such agreement will be deemed to have taken place on 1 April 2017 and therefore subject to 16.5% tax. For a few businesses that are within the initial 12 months of VAT registration, they are still eligible for the 1.0% first-anniversary discount. With the changes in the Flat Rate scheme, it is the choice of the business whether to opt for Flat Rate Scheme or shift to a Standard VAT Scheme. To arise at the best option for the business, it is recommended to speak to a specialist accountant before taking a call.

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