VAT Administration Flashcards
When is the deadline for submitting the VAT return and paying the VAT?
1 month and 7 days after the end of the period, e.g., if a VAT quarter ends on 31 March, the deadline is 7 May.
Payment must reach HMRC’s bank account no later than..
The deadline
IF paying by direct debit, HMRC will collect payment automatically from the business bank account…Payment can be by a debit or credit card from the UK card issuer and can be paid online payment service.
3 working days after the VAT return is due
When paying HMRC it is important to use the right reference number (9 digit VAT registration number), this can be found (2)…
- VAT online account for the business
- On the VAT registration certificate
There are alternative submission and payment deadlines if the…
Annual accounting scheme is used
Describe late submission penalties
- There is a points-based penalty regime for late submission of VAT returns.
- Every time a VAT return is submitted late, the business will get 1 penalty point. These points accumulate and an initial penalty of £200 is charged when the penalty point threshold is reached.
- Annual submissions - 2 point threshold
- Quarterly submissions - 4 point threshold
- A further £200 penalty will be charged for each subsequent late submission whilst at the penalty point threshold.
What does the removal of penalty points depend on?
Whether the business has not reached the penalty point threshold.
If business has not reached the penalty point threshold…
When penalty points expire depends on the date the VAT return was due.
- If deadline was not the last day of a month —> a penalty point expires on the last day of the month, 24 months after this.
- If deadline was the last day of a month —> a penalty point expires on the last day of the month, 25 months after this.
If business is operating under the normal VAT scheme, the cash accounting scheme, or the flat rate scheme, its VAT returns will be due 1 month or 7 days after the end of the VAT period. Therefore the first bullet will apply.
If the business is operating under the annual accounting scheme its VAT return will be due 2 months after the end of the accounting period, therefore the second bullet point will apply.
If business has reached the penalty point threshold…
There is no automatic expiry of penalty points.
Instead, a test of good compliance must be passed in order to reset the points to zero.
- Condition A (complete a period of compliance submitting all VAT returns on time—24 months for annual, and 12 months for quarterly) and condition B (submitting all outstanding returns for the previous 24 months) must be met.
The penalty rules do not apply if (exceptions to this regime) (2)…
- It is the first VAT return of a newly VAT registered business.
- It is the final VAT return for a business that has cancelled its VAT registration.
Describe late payment deadlines
- They can apply to any payments of VAT not being paid in full by the relevant due date, except for instalments made under the annual accounting scheme.
- Penalty system will apply in 2 stages
- Fixed penalties, referred to as “first late payment penalty”.
- Daily penalties, referred to as “second late payment penalty”.
There will be no penalty charged for payments that are…
Up to 15 days late after the due date
Payments between 16 and 30 days late will trigger a ___ ___ ___ ___ only. Payments more than 31 days late will trigger a ___ and ___ ___ ___ __.
- First late payment penalty
- First and second late payment penalty
To calculate the number of days for the second payment penalty, you will need to include day 31 and the payment date in your day account…the easiest way to get this right is…
If you are in day 50…
50 - 30 = 20
Describe how small errors that have been identified are rectified?
They can be corrected on the next VAT return provided they are:
- Not deliberate
- For an accounting period that has ended less than 4 years ago
- Below the reporting threshold
No separate declaration is required to be made to HMRC and the relevant boxes on the next VAT return will be adjusted to correct for this error.
Describe the reporting threshold for small errors made
- If the error is less than £10,000, it can adjusted on your next VAT return.
- If the error is between £10,000 - £50,000 it can be adjusted on your next return as long as the error is not more than 1% of the figure in box 6.
Describe the error correction process on the next VAT return?
- Work out the net value of the error by adding up additional tax due to HMRC less tax due back from HMRC (as a result of all errors in the period).
- If the net error results in additional tax being due to HMRC, this will be in box 1.
- If the net error results in additional tax being due back from HMRC, this will be included in box 4.
Describe how larger errors are rectified?
- If error doesn’t meet reporting threshold, is deliberate, or more than 4 years ago then HMRC should be informed in writing and preferable using a VAT 652 (or in a letter of voluntary disclosure) ASAP.
- The letter must include detailed of the amount, VAT period in which error occurred, whether it affects inputs outputs or both, and whether the error was in favour of the business or HMRC.
- The time limit for correction is 4 years from the end of the VAT period.
A penalty will be charged if the (large) error resulted in (2):
- An understatement of the VAT liability
- A false or increased repayment of VAT
Describe what happens when there is failure to notify HMRC for VAT registration
- If a business fails to register for VAT at the right time, the same standard penalty outlined (inaccuracies in VAT return) may be imposed.
- HMRC will collect the VAT due from the date registration should have taken place.
Describe interest charged on VAT
May be charged if:
- Less VAT is reported than is actually due.
- An assessment is paid which is lower than the actual VAT due.
- An error was made on a previous return resulting in an underpayment of VAT.
Interest is charged on the Bank of England base rate plus 2.5%
What is the penalty for failure to keep records?
VAT records must be kept for 6 years following the end of the VAT period to which they relate (unless an agreement has been made with HMRC which states otherwise).
£500 penalty for failure to keep records.
Describe fraudulent evasion of VAT
Evasion of VAT is seeking to pay too little tax by misleading HMRC deliberately and will include:
- Falsely reclaiming input tax/understating output tax
- Falsely obtaining bad debt relief
- Falsely obtaining a repayment
A criminal penalty may be sought where tax evasion exists which could result in signifcant monetary penalties and/or imprisonment.
HMRC must prove that the person is guilty beyond reasonable doubt. For smaller cases of evasion, HMRC will usually settle out of court with penalties and surcharges.
