VAT online

As you are no doubt aware, online filing of VAT returns will be mandatory from April 2010 for all businesses with a turnover of £100,000 or more.  In addition to submitting the return electronically, payment will also need to be made electronically (for example by direct debit, internet or phone banking). 

The date for the turnover test was 31 December 2009.  So all businesses that had annual turnover of £100,000 or more at that date will be required to file online even if their turnover has subsequently fallen below this amount.  Irrespective of the turnover test, any businesses registering for VAT from 1 April will be required to file online.

Existing registered businesses with a turnover of below £100,000 will only have a brief respite from the new rules.  HMRC’s stated aim is to have all VAT returns filed online by 2012. Of course, there's nothing to stop you filing online now even if you don't meet the compulsory requirements.

So, let’s start with the carrot and look at the stick later. Once registered, it should be much quicker to submit your returns online than by using the traditional paper method. If you are already using one of the well known accounting software packages, there is a high probability that it will be able to submit the return directly which will avoid the necessity for you to rekey the figures into HMRC's website. If you are considering new software, HMRC’s website provides a list of software products that have been successfully tested in this respect.

Extra credit is always a bonus and paying VAT electronically gives a slight cash flow advantage as you will receive a further seven calendar days in which to pay.  In practice, this means that cleared funds must be with HMRC by the seventh calendar day after the standard due date for your return. However, if you select the direct debit option, HMRC will automatically collect payment from your bank account three bank working days after the extra seven calendar days following the standard due date giving you an extra 10 days.

So, what about the stick? Failure to meet the new filing requirements may result in a penalty.  However, the penalties will only apply for VAT return periods ending on or after 31 March 2011 which is effectively allowing businesses a year to comply with the new regulations prior to penalties being levied.  The penalties for failing to submit a return electronically will range from £100 to £400 depending on the turnover of the business. The existing penalty regime will continue for late or non-submission of returns with the additional penalties from 31 March 2011 merely relating to the method by which the returns are submitted.

To get started you will need to register with HMRC for online filing and they have prepared a handy beginner's guide in this respect which you can access at http://www.hmrc.gov.uk/vat/sign-up-for-online.pdf.

If you would like further information regarding this, please contact Darren Austin on 01892 772960.