- Vat Scheme
Implemented in 1973, VAT means Value Added Tax. It is presently a major revenue source for the UK Government. It is a misconception that only UK-based businesses are required to register for VAT. Even if you are not based in the UK and don’t run a UK-based business but supply your goods or services to the UK, you must register for VAT. This has become effective from January 01, 2021. It does not matter what is your VAT turnover if you meet all the above criteria. Again if you are a UK-based entrepreneur, you must register given your total VAT taxable turnover exceeds £85,000 for the last 12 months. Now, the question arises about the consequences in case of failure to register for VAT.
Penalty by HMRC
Yes, you can be penalized by the HMRC when you fail to complete the VAT registration process for your business at the right time. The minimum penalty is £50, but it increases each day! So, getting late in registration may prove costly for your business. Also, it leads to a loss of reputation. The penalty rate will vary as per the delay in registration. For example, there will be a penalty rate of 5% if you have registered for VAT not more than nine months late. After nine months, you need to pay a penalty rate of 10% if you are not late for more than 18 months. Similarly, the penalty rate will become 15% if you are more than 18 months late.
You will get a notification from the HMRC about the penalty amount in writing to avoid any confusion. The only good thing is that if you think the penalty amount is not justified or you should not be penalized, there is room for making an appeal against the penalty. However, the penalty amount can be reduced too! There are some reasonable excuses like bereavement, serious illness, confusion about employment status, and indecision about the liability of supplies that HMRC consider for reduction of the penalty amount.
Late submission penalty points
A penalty by HMRC is not the only thing that will hit you hard as from January 01,2023, changes in late submission of VAT will get implemented across the UK. From that date, whenever you opt for late VAT return submission, you will receive a penalty point! When you reach a penalty threshold, you will have to pay the penalty of £200. Next, if you continue this habit of late VAT submission even after reaching the penalty threshold, you will get a further £200 penalty. Moreover, this penalty point threshold may vary based on the frequency of your VAT submission.
So, act immediately! As a business owner, you must always pay attention towards your tax liabilities. Figuring out your VAT may get tiring and time-consuming. So, it is best to seek professional help from experienced accountants for VAT registration and to ensure timely VAT return submissions. Based in London, CoreAdviz Accountants has a team of skilled accountants who can help you in several ways and that too affordably.