As a general rule, quarterly VAT returns are required in the UK. The government requires businesses to file these returns on a regular basis to ensure they are accurately reporting the sales of their products and services and paying the correct amount of tax.
In this blog post, we take a look at what quarterly VAT returns are, why they need to be submitted, the penalties for not submitting or paying them on time and how we can help.
What are VAT returns and when are they due?
VAT, also known as value-added tax, is a consumption tax paid to the government by businesses based on the value added at each stage of the product's production and distribution.
A VAT return is required for VAT-registered businesses. A business must register for VAT if its VAT-taxable turnover exceeds £90,000, which is the total value of sales subject to tax after any VAT-exempt amounts are deducted.
A VAT tax return determines how much VAT your company owes HMRC (or how much HMRC owes you) by looking at:
Your total sales and purchases over a three-month accounting period.
The amount of VAT you owe for sales
The amount of VAT you can reclaim.
Regardless of whether there is no VAT to pay or reclaim. all VAT-registered businesses are required to submit VAT returns.
As briefly mentioned earlier, the majority of businesses across all industries are expected to file four VAT returns per year, often at the end of each financial quarter.
The most common timeframes for this are January 1st - March 31st, April 1st - June 30th, July 1st - September 30th, and October 1st - December 31st. However, these dates will vary from business to business depending on when it first registered for VAT.
Businesses that have registered for the Annual VAT Accounting Scheme will only be required to submit one VAT return per year. The scheme is open to VAT-registered businesses with an estimated taxable turnover of less than £1.35 million.
Why do they need to be submitted?
All UK businesses must submit quarterly VAT returns for the following reasons:
It ensures accurate collection of VAT revenue for the government
According to the Office for Budget Responsibility, VAT is the UK government's single largest source of revenue and is expected to generate around £175.6 billion in the 2024-25 financial year.
By requiring quarterly returns and payments, HMRC can ensure a consistent flow of tax revenue to public services, detect mistakes earlier, and reduce the amount of tax lost due to avoidable errors.
It encourages financial transparency and legal compliance
The accuracy of VAT returns is critical for financial transparency and maintaining a business's legal compliance and overall reputation.
Quarterly VAT returns require businesses to keep detailed and up-to-date financial records. By reviewing these records every three months, HMRC can ensure that businesses follow UK tax laws and reduce the risk of tax evasion.
Frequent reporting and monitoring from HMRC makes it more difficult for businesses to under-report income or overstate expenses. This encourages financial transparency and accountability within businesses, resulting in better management practices and reducing the likelihood of fraud.
It assists businesses with cash flow management
For the majority of businesses, quarterly VAT returns align with regular financial cycles, enabling better cash flow management. Rather than calculating and paying VAT, which could lead to large, unpredictable payments), quarterly returns break the process into more manageable periods, helping businesses anticipate and plan for VAT payments.
It helps to keep an accurate record of VAT and reduce the likelihood of errors
Businesses that submit returns every three months can accurately track and balance their VAT liabilities, ensuring that they only pay or claim the correct amount.
As touched on earlier, frequent returns also make it easier to catch mistakes early. For example, if a business inadvertently overclaims input VAT or underreports output VAT, the short reporting interval allows for regular error correction and prevents significant inaccuracies from accumulating over time.
Do penalties apply if quarterly returns are not submitted/paid on time?
Yes, in the UK, there are financial penalties for failing to submit or pay quarterly VAT returns on time.
HMRC operates a default surcharge system that is followed if businesses fail to comply:
First default: When a business misses the deadline for the first time, it receives a warning called a ‘Surcharge Liability Notice (SLN).’ There is no penalty for the first late submission or payment.
Subsequent defaults: If the business submits a late return or payment again during the 12 months following the first default, a surcharge is imposed. The surcharge is a percentage of the VAT that was unpaid by the due date, and the percentage increases with each additional default.
The percentage surcharge is based on the business’s annual VAT turnover and the number of times the business defaults within the 12-month period:
2nd default: 2% surcharge
3rd default: 5% surcharge
4th default: 10% surcharge
5th default: 15% surcharge
Businesses with a VAT liability of less than £400 face no surcharge at the 2% or 5% rates.
In addition to the surcharge, HMRC charges interest for late VAT payments. The interest is applied from the date the payment was due until the day it is paid. This interest rate is typically calculated using the Bank of England's base rate plus an additional percentage.
If a business is unable to pay on time, it can contact HMRC to set up a ‘Time to Pay Agreement’, which may help avoid penalties if the agreed-upon terms are followed.
How One Two One can help
Alongside the frequency of reporting, there are several factors to consider when submitting quarterly VAT returns, which is why business owners should delegate this task to a trusted accounting partner.
At One Two One Accounts, we are experienced in navigating the successful completion of VAT returns, ensuring you do not pay more tax than necessary while staying in line with legislation.
We provide regular, systematic advice to our clients to ensure that you keep what is rightfully yours while remaining tax-compliant through our processes and guidance.
For professional accountancy services, get in touch with a member of our team today.
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