Running a business in the UK may require you to register for VAT. Additionally, sometimes it is beneficial to voluntarily become a VAT payer, even if it’s not mandatory. In either case, you must ensure proper registration and, most importantly, submit your VAT returns and pay your taxes on time. Otherwise, you risk facing significant financial penalties.
When will you pay VAT in the UK?
If you run a business in the UK that is not based in the country or you live outside the UK, you must register for VAT. The same is true if you supply goods or services to the UK.
Even if you live in England and run your business there, you may still need to register as a VAT payer. This includes situations where your taxable turnover in the past 12 months exceeded £90,000 or if you expect it to exceed this threshold in the next 30 days.
You can also register voluntarily. Many entrepreneurs choose this option due to the numerous benefits it offers. Is it the right decision for you? It’s best to consult an experienced accountant to find out.
How do I declare VAT for a foreign company in the UK?
The first step in VAT accounting in the UK is registering as a VAT payer. You must then choose one of the available options:
- Standard Accounting Scheme – quarterly accounting. When issuing an invoice, you commit to paying the tax. The standard accounting scheme allows you to deduct VAT on purchases.
- VAT Flat Rate Scheme – available for businesses with an annual turnover not exceeding £150,000 net. You pay a flat-rate tax on the gross invoice, with the rate depending on your business sector. You cannot deduct VAT on purchases.
- Cash Accounting Scheme – the obligation to pay VAT on sales arises only when you receive payment from the client. VAT on purchases can be deducted, but only after the payment has been made.
- Annual Accounting Scheme – you submit one VAT return per year and have the option to spread payments into installments. You can use this option if your turnover does not exceed £1,350,000.
The next step is to familiarize yourself with the applicable VAT rates. In the UK, these are:
- 20% – the standard rate, applied to most goods and services in the UK,
- 5% – the reduced rate, applicable to household gas and electricity, energy-saving products, and child safety products,
- 0% – applies to most food products and children’s clothing and footwear.
There are also additional groups of services and goods that are outside the scope of VAT (insurance, financial services, medical services, etc.).
The final step is submitting the VAT return itself. The return must include details about the value of sales and purchases, the total VAT amount due, as well as any deductions and the amount of VAT to be refunded. It’s crucial to submit your return on time. Failure to do so may result in financial penalties.
What penalties apply for failing to register for VAT?
Currently, a Default Surcharge is in place, which is a collective sanction for late VAT payments and delayed return submissions.
However, HMRC does not impose penalties after just one day of delay. First, they issue a surcharge liability notice valid for 12 months. If further delays occur, the liability is extended. The penalty can reach up to 15% of the VAT amount, depending on the number of delays.
However, HMRC does not impose penalties after just one day of delay. First, they issue a surcharge liability notice valid for 12 months. If further delays occur, the liability is extended. The penalty can reach up to 15% of the VAT amount, depending on the number of delays.
Additionally, simply not paying VAT will also incur penalties. If you don’t pay the tax within 15 days of the due date, the penalty will be 2% of the tax owed. After 30 days, it will increase to 4%.
Let professionals handle your VAT return
As you can see, VAT registration for a company in the UK is a really comprehensive topic. Not only do you have to choose the right form of tax settlement, but you still have to take care of all the formalities and make sure your taxes are paid on time. Even more difficulties may arise when deciding whether voluntary registration is a good solution for your business.
There is, however, an easier way – using professional assistance. Our office can help you properly account for your business. We’ll advise you on whether voluntary VAT registration is beneficial, recommend the best VAT scheme, and ensure timely submission of reports and tax payments. Take advantage of professional help and gain the confidence that your accounting is in good hands.
