As a VAT registered business you will need to ensure that you pay HMRC VAT liabilities across before the payment deadline. It is important to set up processes within your business to ensure compliance. In this article we will discuss the ways you can pay HMRC VAT liabilities as well as what it means for your business if you miss a deadline.
For most VAT registered businesses the payment deadline to pay HMRC VAT liabilities aligns with the submission deadline of the corresponding return so if your VAT return needs to be submitted by 7th May then the payment usually needs to be received by the same date.
As a general rule the deadline for both submission and payment will be 1 month and 7 days following the end of the period in question. This means a business who’s VAT quarter ends on 30th June would need to submit the return and pay HMRC VAT liabilities by 7th October.
You can check your payment deadline by logging into your VAT online account and checking against the relevant return.
There are some situations where the above deadlines will not apply, for example those businesses registered for VAT annual accounting, which works differently. We will explore how to pay HMRC VAT liabilities under annual accounting schemes later in the article.
It is important to remember that the payment deadline (1 calendar month and 7 days after the end of the VAT period) relates to the date the payment needs to have been received by HMRC. You will need to allow sufficient time for any payment to clear with HMRC.
Ways To Pay HMRC VAT liabilities
You must pay HMRC VAT liabilities electronically either via direct debit or direct bank transfer, HMRC do not usually allow businesses to make VAT payments by cheque although if your business cannot make a payment electronically there is an option to contact HMRC.
Where the payment deadline falls on a weekend or a bank holiday the payment needs to have cleared HMRC’s account by the last working day prior to this.
It is important to remember that some payment types can take longer than others to process and this should be considered when you pay your HMRC VAT liabilities.
Accepted electronic payment methods that will clear the same or next day include:
- Faster payments such as online or telephone banking
- CHAPS transfers
- Direct debit
- Standing orders (only suitable for annual accounting)
- Online by debit or commercial credit card
- At bank or building society
A VAT surcharge can be applied by HMRC following either a late payment or a late submission. HMRC will mark your account as in default following the incident and may choose to place your account in a surcharge period which last for 12 months. If you were to default again during that surcharge period the period will be extended for a further 12 months and you may need to pay a surcharge on top of what is already owed.
The amount of the surcharge will be detailed in a letter from HMRC which will also explain what happens if you default again.
You won’t always be charged a surcharge for your first default but surcharges that are applied will range from 2% to 15% depending on how many defaults you have had in the past 12 months and whether or not the business has an annual turnover more or less than £150,000.
|Defaults Within 12 Months||Surcharge If Annual Turnover Is Less Than £150,000||Surcharge Is Annual Turnover Is More Than £150,000|
|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)|
|6th||15% or £30 (whichever is more)||15% or £30 (whichever is more)|
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VAT Annual Accounting
If your business is registered for VAT annual accounting then the way you pay VAT will differ. Most businesses that report VAT on a quarterly basis won’t know how much the next quarters liability will be until the return is completed and filed whereas under the annual accounting scheme only 1 VAT return is submitted at the end of the year and the payments are made in advance and spread across the year in question.
Because the business ends up making regular payments on account for the same amount this gives them the additional option of setting up a standing order (which cannot be used for traditional quarterly reporting). Under the VAT annual accounting scheme businesses will need to make advanced payments either:
- Quarterly (25%) – at the end of months 4, 7 and 10
- Monthly (10%) – at the end of months 4 through 12
In certain situations interest can be charged on unpaid VAT at a rate of 2.6%. In this situation HMRC would inform you in writing. If the amount remains unpaid after 30 days then HMRC will continue to charge interest from the date of the notice up to a maximum of 2 years. The interest charged by HMRC on unpaid VAT is not an allowable expense for your business when calculating taxable profits.
Likewise if you overpay VAT due to a HMRC error then you may be able to claim interest but unfortunately this is at a lower rate of 0.5%. Claims must be made separately to any repayment and can be done by writing to HMRC within 4 years of the repayments authorisation date. In this situation any interest payable by HMRC would be treated as taxable income by the business. If the error was actually caused by a mistake you made then you would not be able to claim interest.