HMRC introduced new VAT and PAYE penalties in January 2023, and these will shortly start to build up for recurrent defaults.

VAT – Late submission

VAT returns are due electronically, usually one month and 7 days after the end of your VAT return period

A late VAT return will earn you a penalty point. When you reach a certain number of points then you get a fixed £200 penalty for every extra late return

You need a good compliance record in order to clear the slate i.e. all old returns submitted and a number of consecutive returns submitted on time.

Return frequency	Penalty points threshold	Returns to Clear record
Monthly	5	6
Quarterly	4	4
Annually	2	2

 

VAT – Late payment

VAT is usually due one month and 7 days after the end of your VAT return period – or you can sign up to direct debit that will be collected on 10^th.

Up to 15 days late	No penalty
Over 15 days	Fixed 2% of day 15 balance
Over 30 days	Extra Fixed 2% of day 30 balance
Over 31 days	Extra 4% per annum on daily balance

 

PAYE – Late submission

Wages must be advised to HMRC on or before payday.  If no wages have been paid within a tax month ( 6^th to 5^th) then a nil return is required by 19th

Penalties for failing to advise no wages were paid or reporting wages more than 3 days late:-

• £100 pm, if you have less than 9 employees
• £200pm for 10-49 employees
• £300 pm for 50 to 249 employees
• increasing to £400 if you have more than 250 employee

Memo: 3 day grace period is to account for rule that says wages should be reported as if paid on normal payday if payment is delayed due to weekend or bank holiday)

PAYE – Late payment

PAYE is due for each tax month 6th to 5th by 19th or 23rd if paid electronically.  A small business may choose to pay quarterly with due dates of 19^th July, October, January and April.

National Insurance eon benefits in kind is due 19^th July

Penalties for late payment are based on number of late payment defaults, when the above deadlines have not been met, within the tax year

First default in the tax year	No Penalty
1 – 3 defaults	1%
4 – 6 defaults	2%
7 – 9 defaults	3%
10 or more	4%

Any PAYE still outstanding after 6 months will incur a further 5% penalty, and again if over 12 months late.

HMRC interest

Interest will also be charged on late payment, at 2.5% above base rate. HMRC will add interest to late paid refunds, at 1% below base rate.

Penalties not paid within 30 days can also attract interest.

Government Gateway

A Government Gateway account for your business is a great way to access government services e.g. small claims; also to keep on top of HMRC submissions, liabilities and penalty status. Once registered you can also check and change your details e.g. bank account for refunds, bank account for direct debit payments, agent authorisations and address – do not get caught out by HMRC having incorrect details.

You can also get a personal government gateway account, to see and manage your personal tax affairs as well as get a state pension forecast etc

To register then please visit https://www.gov.uk/log-in-register-hmrc-online-services/register

VAT (Value Added Tax) is a tax on spending. The person who want the goods or services and uses them to their own ends ultimately pays.  However, those of us who are in business, need to collect this tax and pay it over to HMRC.  We create the goods and services and collect the selling price for us and the VAT for HMRC.

However, there are only a few businesses who operate a simply as this.  Many businesses buy and sell between themselves, in a chain from creation to end use.  When this happens then each business needs to collect and hand over their part – the part for the value they have added in the process.  Hence the term Value Added Tax.

Small businesses may choose to be considered the end use rather than operate the system however VAT registration is compulsory if your business turnover is over £85,000.

Monitoring

When coming up to this level then there are certain things you need to know;

1. VAT registration is per trader, not per business. So, if you own two businesses then the turnover is aggregated.
2. A Partnership, an individual and a company are each separate traders for VAT purposes.
3. First test is, if your turnover exceeded the threshold in the last 12 months then you have to register by the beginning of next month. This is a rolling 12 calendar months, to the end of last month, not your last accounts year or the tax year.
4. Second test is, if you expect to bill over £85,000 in the next 30 days alone, then you need to register today.
5. The above are compulsory registration dates, you can voluntarily register earlier if desired.
6. Turnover tests use the official due date for VAT which is the earlier of:

• Date of payment.
• Date job is complete – but this can be overridden by invoice date if within 15 days of completion, or any alternative invoice date that is standard industry practice e.g. end of the week/month, or for each phase.

7. VAT can be recovered on goods and assets (including stock) you still have at date of registration, as long as purchased with VAT within the previous 4 years
8. VAT can be recovered on services purchased for your own business use, with VAT, within the 6 months prior to VAT registration.
9. Penalties for late registration are based on VAT due for the period between the date you should have registered and the date you notify HMRC.

• Prices are generally quoted to the general public inclusive of VAT, but to businesses exclusive of VAT.
• Most businesses will be able to any recover VAT charged to them, but private individuals and charities will not.
• When VAT registered you will be able to recover VAT on your purchases.

Planning:

1. What effect will VAT have on your business? It will depend on who your customers are:-

• the general public will not pay more, so you will be losing out on the VAT you have to charge on in house created goods & services,
• businesses will pay you the VAT on top of quotes, so you will be gaining by the VAT you can recover on bought in goods and services.

2. Start to include/mention VAT in your quotes, in advance of VAT registration. You can then start to see the reaction of the general public on your business and hence how VAT registration will affect you.
3. The basic rule is that if your clients are all UK VAT registered businesses then VAT registration sooner rather than later is good. If the General Public then later is best.
4. Monitor your Turnover to see when you reach the threshold.
5. Be more aware of dates when invoicing. Which month do invoices fall in, do they effect when you go over the threshold. Get the general public to pay earlier, before VAT registration.
6. Beware of dates of big spends e.g. new website, old truck – so you do not lose out by registering too late for VAT recovery.
7. If you miss the deadline then tell HMRC ASAP before you raise any more invoices.
8. Start to get into the habit of asking for and collecting VAT receipts – each one is worth to you the VAT mentioned thereon.
9. Get your bookkeeping computerised and plan how you are to submit VAT returns, VAT bookkeeping must be digital (i.e. no pen and paper) and submission direct from those digital records.

In Summary,

• VAT will become compulsory as you grow, so consider it from day one.
• The VAT man insists on good bookkeeping – use this to monitor and grow your business
• Learn how VAT effects your business and work with it – do not fight it
• Do not ignore VAT or you will get penalised

If we can be of further assistance, then do contact us at Firestone Accountants

VAT (Value Added Tax) is a tax on spending. The person who want the goods or services and uses them to their own ends ultimately pays.  However, those of us who are in business, need to collect this tax and pay it over to HMRC.  We create the goods and services and collect the selling price for us and the VAT for HMRC.

However, there are only a few businesses who operate a simply as this.  Many businesses buy and sell between themselves, in a chain from creation to end use.  When this happens then each business needs to collect and hand over their part – the part for the value they have added in the process.  Hence the term Value Added Tax.

Small businesses may choose to be considered the end use rather than operate the system however VAT registration is compulsory if your business turnover is over £85,000.

Monitoring

When coming up to this level then there are certain things you need to know;

1. VAT registration is per trader, not per business. So, if you own two businesses then the turnover is aggregated.
2. A Partnership, an individual and a company are each separate traders for VAT purposes.
3. First test is, if your turnover exceeded the threshold in the last 12 months then you have to register by the beginning of next month. This is a rolling 12 calendar months, to the end of last month, not your last accounts year or the tax year.
4. Second test is, if you expect to bill over £85,000 in the next 30 days alone, then you need to register today.
5. The above are compulsory registration dates, you can voluntarily register earlier if desired.
6. Turnover tests use the official due date for VAT which is the earlier of:

• Date of payment.
• Date job is complete – but this can be overridden by invoice date if within 15 days of completion, or any alternative invoice date that is standard industry practice e.g. end of the week/month, or for each phase.

7. VAT can be recovered on goods and assets (including stock) you still have at date of registration, as long as purchased with VAT within the previous 4 years
8. VAT can be recovered on services purchased for your own business use, with VAT, within the 6 months prior to VAT registration.
9. Penalties for late registration are based on VAT due for the period between the date you should have registered and the date you notify HMRC.

• Prices are generally quoted to the general public inclusive of VAT, but to businesses exclusive of VAT.
• Most businesses will be able to any recover VAT charged to them, but private individuals and charities will not.
• When VAT registered you will be able to recover VAT on your purchases.

Planning:

1. What effect will VAT have on your business? It will depend on who your customers are:-

• the general public will not pay more, so you will be losing out on the VAT you have to charge on in house created goods & services,
• businesses will pay you the VAT on top of quotes, so you will be gaining by the VAT you can recover on bought in goods and services.

2. Start to include/mention VAT in your quotes, in advance of VAT registration. You can then start to see the reaction of the general public on your business and hence how VAT registration will affect you.
3. The basic rule is that if your clients are all UK VAT registered businesses then VAT registration sooner rather than later is good. If the General Public then later is best.
4. Monitor your Turnover to see when you reach the threshold.
5. Be more aware of dates when invoicing. Which month do invoices fall in, do they effect when you go over the threshold. Get the general public to pay earlier, before VAT registration.
6. Beware of dates of big spends e.g. new website, old truck – so you do not lose out by registering too late for VAT recovery.
7. If you miss the deadline then tell HMRC ASAP before you raise any more invoices.
8. Start to get into the habit of asking for and collecting VAT receipts – each one is worth to you the VAT mentioned thereon.
9. Get your bookkeeping computerised and plan how you are to submit VAT returns, VAT bookkeeping must be digital (i.e. no pen and paper) and submission direct from those digital records.

In Summary,

• VAT will become compulsory as you grow, so consider it from day one.
• The VAT man insists on good bookkeeping – use this to monitor and grow your business
• Learn how VAT effects your business and work with it – do not fight it
• Do not ignore VAT or you will get penalised

If we can be of further assistance, then do contact us at Firestone Accountants