What Is the Monthly VAT Returns Threshold?
Any business with turnover of more than £85,000 per annum is required to register for VAT. In most cases, businesses file their VAT returns quarterly, but there are some circumstances under which a company may pay VAT on a monthly basis. A business may opt to do this in certain cases - for example, if they are a frequent exporter whose deductible input tax regularly exceeds their output tax - or HMRC may require businesses to make monthly ‘payments on account’.
In this guide, we will explain how VAT thresholds work, outline the current tax liability threshold that requires businesses to make monthly payments, and define ‘payments on account’. If you need support with registering for VAT, help with filing returns or advice on whether monthly payments are suitable for you, contact the expert accountants at Monetta today for guidance tailored to your unique circumstances.
What are the thresholds for VAT and payments on account?
The VAT threshold is currently set at £85,000, and is expected to remain at this level until at least 2024. This means that any business with more than £85,000 in taxable turnover in the previous 12-month period must register for VAT with HMRC. You must register within 30 days from the point that your turnover reaches £85,000; if you have reason to expect turnover to reach this figure within the next 30 days, you must register as soon as possible or risk incurring a penalty for making a late registration.
Businesses with lower turnover can choose to register voluntarily and this may be beneficial where either the goods or services supplied are zero-rated, or where the business only supplies VAT-registered customers. We recommend speaking to a professional accountant as many smaller businesses that could benefit from voluntary registration are unaware of this. If all of the goods and services your business provides are exempt from VAT, you will not need to register.
The threshold for entering the payments on account regime is £2.3 million. If your VAT liability exceeds this amount in a period of 12 months or less (meaning that you owe at least £2.3 million to HMRC), you may be required to make monthly payments on account. These function as advance payments towards your VAT bill. Payments must be made by the last working day of the second and third months each VAT quarter, while any balancing payments are due at the same time as your VAT return. VAT quarters are determined by your annual cycle, and these are staggered, so you will need to ensure you know which stagger you are on in order to meet your tax obligations.
Monthly payments are calculated based on the total amount you owe during the period in which you exceed the £2.3 million threshold. If you have been in business for more than 12 months, this number is divided by 24 to reach the payment amount.
How do I register for and pay VAT?
You can register for VAT online at the government’s website, or by filling out a VAT1 form and sending it by post to HMRC. Most businesses now have to file their VAT returns digitally, so it is usually best to apply online and to gain experience using the portal. If you are concerned, you can also have an accountant file your returns and work with HMRC on your behalf.
It is important that you pay the correct amount of VAT or your business (and potentially the individuals involved) could suffer serious legal repercussions, which could include a tax investigation or other procedure. Read more about HMRC Enquiries or speak to a member of our team if you are concerned that you have filed an incorrect return or paid the wrong amount of tax.
Tax matters can be confusing and complicated, but Monetta can help. We can guide you through the process of filing your VAT return to ensure your business remains HMRC compliant, help you to implement processes for making your payments on a monthly or quarterly basis, or fulfil this responsibility on your behalf.
Our team has experience with businesses of all sizes and can tailor our services to your individual needs. We also offer tax planning services, which can help you to reduce your overall tax liability.
For more information on how Monetta can help you, visit our VAT Returns page, call us today or fill out our online enquiry form and we will call you back.