UK
  • Singapore
  • Hong Kong
  1. Osome Blog UK
  2. VAT Returns and Making Tax Digital (MTD) in the UK

VAT Returns and Making Tax Digital (MTD) in the UK

Filing your VAT return and paying the tax is part of your accounting obligations to the UK authorities. From 2019, VAT goes hand in hand with Making Tax Digital — a compulsory system, moving the VAT payments online.

MTD is a system that makes things a lot easier for those who chose to outsource their bookkeeping and accounting services to an online firm.

We explain what it is all about and what deadlines there are not to miss.

What is VAT?

VAT stands for “Value Added Tax”, that is a tax on the sale of goods and services. A business must pay VAT if its VAT taxable turnover exceeds a certain limit. The most frequent threshold is £85,000 but it may be different if you are an overseas business importing into the UK or you trade with the EU.

The VAT tax rate is the amount of VAT charged depending on the types of goods and services in question. It varies, but 20% is a standard one.

What are the VAT deadlines?

VAT payment due dates might be every month, every quarter (3 months), or every year — you get to choose how long your accounting period will be.

If you submit the return yearly, you still pay your VAT more than once a year and the sum is based on estimations — this scheme is the least popular of all.

VAT return due dates:

Monthly 1 calendar month and 7 days after the reported month ends
Quarterly 1 calendar month and 7 days after the reported quarter ends

For 1 or 3 months, you must submit the returns and pay tax within 1 calendar month and 7 days after the accounting period ends. If your money does not make it to HMRC within the set time frame, they will assume you broke the deadline and fine you. Of course, it is important not to miss the VAT return deadlines, but it is also better to pay your taxes in advance.

Richards’ quarter-long accounting period ends on 31 March 2020. He must submit and pay VAT to HMRC by 7 May 2020.

His competitor Jannie pays VAT monthly. She is to pay the bill for March 2020 and one of her deadlines is also 7 May 2020.

UK government offers VAT payment deadline calculator

What is MTD?

MTD stands for Making Tax Digital — what is a compulsory system of online tax filing, that is to be fully introduced by 2020-2021.

You can use the government’s accounting software or just keep using the software you already have — if it has made its way to the list of HMRC-approved services. For example, Xero and Moneysoft have.

Most businesses in the UK are obliged to switch to digital VAT records from the 1st April of 2019. When the authorities launched the service, they set MTD deadlines:

Type of business Deadline for switching to MTD
Most of the cases (it is you unless you are notified that you are in the deferral group) 1 April 2019
Deferral group businesses (for which it is thought harder to switch): non-profit organisations that are not companies, trusts, traders based overseas, etc. 1 October 2019

You can apply for an exemption from using MTD by calling or writing to HMRC. They might grant you the exemption if you can’t use computers/internet because of your age, disability or location, or if you object to using MTD on religious grounds. HMRC will make a decision on a case-by-case basis.

As for the penalties, HMRC stated that the first year of MTD usage is a soft landing period, what would mean that they might not be too strict if you fail to comply with the compulsory initiative’s guidelines. However, you will still get penalties for failing to submit VAT in time.

So far, MTD has been put into full practice and made compulsory only for VAT filings. However, MTD for income tax and corporation tax are also on their way — but they are not expected to become fully operational before 2021. HMRC is also working on MTD for individual tax returns.

Starting a new business in the UK? We will do all the work for you.

Share this post:

Tips to run your business smarter.
Delivered to you monthly.

You'll receive a verification email you'll have to open and confirm the subscription.

You might like it

E-commerce

How Does Amazon FBA Work?

Fulfillment by Amazon, or FBA, as it’s often called, allows individuals and businesses to sell products on Amazon without lifting a finger - the platform does everything for you.

E-commerce

10 Steps for E-commerce Businesses To Succeed on Square

With so many opportunities for businesses, the only reason not to get started is because you haven’t got an online store - and Square Online answers that problem for you. Available in the United States, the United Kingdom, Australia and Ireland.

E-commerce

KPIs and Metrics E-commerce Businesses Must Track for Optimizing Their Marketing Efforts

How do you know your business is doing well? Or the new growth tactic you applied a month ago is taking your business in the right direction? The answer is having precise data of all activities of your business proceedings.

E-commerce

When Should I Hire An Accountant For My E-commerce Store in the UK?

The boom in e-commerce is great for business, but does mean more responsibility and demands for business owners. If financial matters are starting to build up, it might be time to get an accountant for your e-commerce store.

Accounting

5 Tips on How To Approach Automating Recurring Tasks in Accounting

The bulk of accounting work often involves repetitive tasks that can get tedious and time-consuming for many e-commerce business owners. You can now enjoy the benefits of automation in accounting.

Accounting

How Can Working With An Accountant Help Your Startup Grow?

As a small business owner, you have probably experienced having to wear multiple hats, undertaking everything from marketing to accounting. Running a business involves many different interconnected variables, with accounting being one of the essential tasks.

E-commerce

Upselling and Cross-Selling Strategies for E-Commerce Stores

We are inundated daily with countless ads throughout our day, both online and offline. As an e-commerce store retailer, one of the challenges that you may face is trying to get your products and message across to prospective customers.

E-commerce

A 2021 Holiday Sales Checklist for E-commerce

Although the sales period will mean that your customers’ shopping carts will be busier, this also brings about its own set of challenges for your online business. Follow our holiday season checklist to ensure your business is well equipped for the shopper surge.

E-commerce

Types of E-commerce Business Models

The e-commerce business in the UK is booming. In 2021, Statista reported that online marketplaces has been flourishing with projected sales of £80.678 million. In addition, the global pandemic has accelerated the digital economy.

Accounting

Business Records: A Guide for New E-commerce Owners

While recordkeeping can be challenging, having clear records of your employees, expenses, income, accounts and tax documents can help you monitor your company's progress and give you peace of mind.

Running My Business

Things To Know Before Renting Office Space in the UK

As a business owner, having your own space to run your business can be an exciting thought. However, renting your own office space is a huge decision, and one that requires much consideration and planning before implementation.

E-commerce

Digital Payment Trends To Take Note Of

Digitising payment methods will help you take payments quickly. Many entrepreneurs are now running an online business and it’s not possible to make offline payments or cash on delivery every time. At the same time, you have to stay on top of current trends and meet your customer’s needs.

Tips to run your business smarter. Delivered to you monthly.

You'll receive a verification email you'll have to open and confirm the subscription.

We’re using cookies! What does it mean?