VAT registrations & cancellations
VAT registration – UK
If your company’s taxable turnover, from 1 April 2017, is greater than £85,000 the law requires you to register for Value Added Tax (VAT) with HM Revenue & Customs (HMRC). It is important to register your company on time as failure to do so could lead to a VAT penalty.
International VAT registration
There will be different procedures when considering your VAT registrations worldwide, managing the cashflow implications and securing VAT repayments from other countries. Our clients use our VAT registration service which means you can ensure that your company is properly registered with HMRC or other international tax authorities
Completing a VAT cancellation form means you can ensure that your company can notify HMRC of your cancellation. You must do this within 30 days of your reason for cancelling the registration or you may be charged a penalty. Reasons for cancellations include :
- you stop trading or stop making VAT taxable supplies:
- you join a VAT group.
It is important to remember that VAT is due on business assets on hand at the time of de-registration and that there is a special scheme for claiming post-deregistration input tax.
VAT penalties advice
Once you are VAT registered it is important to understand the different types of HMRC VAT penalties and how to avoid them. HM Revenue & Customs have a penalties system for those who have failed to correctly notify them with regards to VAT. Below you will find examples of different types of situations that may incur a VAT penalty.
If you are in business and you fail to register for VAT on time you can be liable to a penalty of the greater of £50 and between 5% and 15% of the VAT due depending on the lateness of the notification.
Errors on returns and claims can incur VAT penalties. You could be fined for not taking ‘reasonable care’ or deliberately including false information. This requires a disciplined approach to bookkeeping and other tasks, although spending a little time each day on routine tasks could avoid having to spend days trying to make sense of paperwork. To ensure errors are not made, check with your accountant.
Retention of records
The period for retaining records is six years. There is a VAT penalty for breaching this requirement.
What to do if you have made an error on your VAT return?
When you find you have made an error(s) in a previous VAT return you must tell HMRC. You can include the net value of the adjustment in the VAT return for the period of discovery if the net value of the errors does not exceed the greater of £10,000 OR 1% of the box 6 figure required on the VAT return for the period of discovery, subject to an upper limit of £50,000. In all circumstances you can use this form (VAT652 Voluntary Disclosure of VAT Return Errors) to do so. Interest may be charged by HMRC on errors.
Late VAT return or payment
If HMRC has not received your return and all the VAT due by the due date a business will enter the penalty regime. Initially a warning letter will be issued, a Surcharge Liability Notice (SLN). Subsequent late returns or late payments will incur a penalty, known as a Default Surcharge, which start at a minimum charge of £30 or 2% of the VAT on the late VAT return and can climb to 15% of the VAT on the late return. Each default, whether it is late submission of the return or late payment, extends the surcharge liability period.
Keeping HMRC informed
Failure to notify HMRC of any changes to your business that may have an effect on future liability may result in a penalty charge. If you aren’t sure which changes need to be notified to HMRC, you may want to seek advice from an accountant. Make sure that you are aware of current thresholds for various types of tax so that you can remain compliant. If you would like to know more about avoiding penalties, contact us today.
What to do if you have a VAT penalty or VAT assessment?
Some of these VAT penalties may not apply if there is a reasonable excuse, but the scope is limited and should not be relied upon. A penalty may have a technical error meaning that if challenged it could be withdrawn. There is only a limited amount of time to dispute any penalty. If you receive a VAT penalty you must check it and notify HMRC within thirty days if it understates your liability.
VAT arrangements for small businesses
HMRC have introduced a number of VAT schemes designed to reduce the administrative burden on small businesses.
Cash accounting scheme
A business is eligible to use the cash accounting scheme if it expects the value of its taxable supplies in the next year will be £1,350,000 or less.
Annual accounting scheme
A business that expects the value of its taxable supplies in the next year will be less than £1,350,000 can apply to join the annual accounting scheme. The scheme allows businesses to complete one VAT return each year whilst making interim payments each month or quarter
Flat rate scheme
The flat rate scheme for small businesses with an annual taxable turnover of up to £150,000 and VAT-inclusive annual total turnover (including exempt income) of up to £187,500 is available. It is possible to use the flat rate scheme together with the annual accounting scheme. The scheme benefits from simpler bookkeeping but businesses may pay more or less VAT than it would under the normal rules.
VAT repayments / VAT refunds / VAT reclaim
So you have adhered to all the rules. You have no VAT penalties and no need to appeal. But you notice that you have paid too much and due a VAT repayment. How does a business reclaim VAT that’s been overpaid? You can include the net value of the adjustment in the VAT return for the period of discovery if the net value of the errors does not exceed the greater of £10,000 OR 1% of the box 6 figure required on the VAT return for the period of discovery, subject to an upper limit of £50,000. In all circumstances you can use this form ( VAT652 Voluntary Disclosure of VAT Return Errors ) to do so. There is a four year time limit for correcting errors, including seeking a VAT repayment, and interest may be due from HMRC in certain circumstances. If you’ve charged your customers less VAT than you’ve paid on your purchases, HMRC usually repay you the difference. To claim this back you must complete the boxes on your VAT Return, the information you enter will show you the:
- total amount of VAT charged – Box 3
- total amount of VAT paid – Box 4
VAT Repayments are usually made within 10 working days of HMRC getting your VAT Return. They go direct to your bank account. If the repayment is not received within the legal time limits the business may be entitled to receive a repayment supplement from HMRC.
Business assets of £50,000 and more?
There are special rules for reclaiming VAT for:
- individual computers and single pieces of computer equipment costing £50,000 or more before VAT
- aircraft, ships and boats costing £50,000 or more before VAT
- land and buildings costing £250,000 or more before VAT
You may need to adjust the amount of VAT you reclaim over several years using the Capital Goods Scheme. As a specialist VAT accountancy firm we help large corporations with most of the more difficult VAT issues. Please get in touch if you think we can help.
VAT appeals against VAT penalties and VAT assessments
Appeals against penalties or assessments may be made to the independent tribunal which has powers of mitigation in appropriate circumstances. There are strict time limits for lodging a VAT appeal. The tribunal is given the authority to increase assessments that are established as being for amounts less than they should have been. A formal procedure is also available for VAT appeals to be settled by agreement. This agreement must be in writing, and there is a thirty day cooling off period during which the taxpayer may cancel the agreement.
VAT accountants and advisors
As VAT becomes increasingly more complex more and more businesses are incurring penalties. We help both our SMEs and larger corporations to make the most of the more difficult issues with careful tax planning to avoid VAT penalties, appeal VAT penalties and maximise VAT repayments. Our accountants in Leeds are experienced in dealing with HMRC enquiries and tax investigations. If you have recently had a VAT penalty or VAT assessment don’t panic! If you think that we may be able to help you please get in touch.
More useful Haines Watts links
VAT: Seven key points for the smaller business A primary aim is to highlight common risk areas as a better understanding can contribute to a reduction of errors and help to minimise penalties.
VAT: Cash accounting. Cash accounting enables a business to account for and pay VAT on the basis of cash received and paid rather than on the basis of invoices issued and received.
VAT Factsheet The VAT system is policed by HMRC with heavy VAT penalties for breaches of the legislation. Ignorance is not an acceptable excuse for not complying with the rules. We highlight below some of the areas that you need to consider.