Tax is ever-evolving and if you snooze you risk missing changes. With that in mind it is absolutely the case that businesses need to keep abreast of the latest legislation changes to avoid heavy penalties. With the VAT registration threshold set to increase from £85,000 to £90,000, it’s clear that there are plenty of changes on the horizon. Here’s how you can keep your business VAT compliant now – and in the future.
What are VAT late payments and penalties?
VAT late payments occur if businesses fail to submit VAT returns or pay the due amount by the deadline. The introduction of a points-based system for late submissions and tiered penalties for late payments in 2023 aimed to make the penalty system fairer and more proportional. For instance, businesses now face a £200 penalty upon reaching the penalty threshold for late submissions, with further penalties for subsequent late submissions.
Why do late payments happen?
Late payments often happen because of oversight, a misunderstanding of VAT obligations or financial difficulties. The complexity of VAT regulations, especially in areas like partial exemption and the treatment of specific business activities (e.g., gambling and hospitality) can also contribute to delays and inaccuracies in VAT reporting.
What are some of the best strategies to avoid VAT penalties?
During times of uncertainty, many businesses are finding their bottom lines are squeezed. This means it’s important not to fall foul of late fees or penalties. Here are some of the best things you can do to minimise the chance of additional charges from HMRC.
- Stay informed on VAT changes: Awareness of updates, like the recent increase in the VAT registration threshold and changes in penalty structures, is vital. By staying informed, you can put measures in place to protect your business.
- Accurate record-keeping: Maintaining up-to-date records of all VAT-related transactions is essential so that you can make sure your accounts are accurate and any submissions are made on time. One way you can do this is with digital tax systems that help keep your records precise.
- Use of payment plans: HMRC offers the option to set up payment plans if you’re struggling to pay a VAT bill in full, providing a buffer against late payment penalties.
- Timely communication with HMRC: Updating HMRC with any changes in your business bank details can prevent delays in VAT refunds, which are crucial for cash flow management.
- Understanding repayment interest: If HMRC delays your VAT repayment, you may be entitled to repayment interest, calculated at the Bank of England base rate minus 1%, with a minimum rate of 0.5%.
- Seek professional advice: VAT is a complex area with nuances that can significantly impact your business. Consulting with VAT specialists can help navigate the complexities and ensure compliance.
Final thoughts
Adapting to VAT changes requires vigilance and a proactive approach to management. By staying informed, maintaining accurate records and engaging with HMRC as needed, you can navigate these changes effectively, maintain compliance and avoid penalties.