Follow us on social media and share your feedback

Download our app‍s‍:

Download on the App StoreGet it on Google Play
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

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

Statistics on E-commerce in the United Kingdom in 2021
E-commerce

Statistics on E-commerce in the United Kingdom in 2021

E-commerce now accounts for more than one quarter of all retail sales in the UK. This number is expected to steadily increase in the years ahead, and would reach nearly one-third of all retail sales by 2024.

Best Platforms for E-commerce Entrepreneurs To Sell
E-commerce

Best Platforms for E-commerce Entrepreneurs To Sell

As an e-commerce entrepreneur, to get into the UK e-commerce market, you would need to get on the best e-commerce platforms which will help you grow your retail business and help more customers find you online.

Post-Brexit VAT Rules for UK and EU E-Commerce Businesses on Amazon and Online Marketplaces
Accounting

Post-Brexit VAT Rules for UK and EU E-Commerce Businesses on Amazon and Online Marketplaces

From the 1st January 2021, all E-commerce sellers and marketplaces have to abide by new VAT rules when exporting goods based in the EU into the UK. The VAT rules depend on many conditions. Let’s unpack them.

Post-Brexit VAT Rules UK Businesses Need to Take Note of
Accounting

Post-Brexit VAT Rules UK Businesses Need to Take Note of

If you consider your company an SMB, you may be asking, “Will there be VAT after Brexit?”. This article will touch on the major regulatory changes for VAT which all UK and EU businesses need to be aware of after Brexit in 2021 onwards.

The Only List You Need to Plan E-commerce Sales in 2021
E-commerce

The Only List You Need to Plan E-commerce Sales in 2021

If you’re the owner of an e-commerce store, it’s important to know the holiday dates throughout 2021. An e-commerce calendar is crucial for keeping up-to-date with seasonal sales, official holidays and celebrations.

Keeping Invoices Organised for Your Small Business
Accounting

Keeping Invoices Organised for Your Small Business

Paperwork is the least popular business activity to do because frankly balancing receivables and payables takes up a lot of time and can cause a severe headache. So how can we organise invoices and receipts more efficiently?

Should I Pay Corporation Tax with My Personal Credit Card or Company Card?
Tax

Should I Pay Corporation Tax with My Personal Credit Card or Company Card?

When it comes to actually submitting your payment, you might be wondering whether it’s best to use your personal credit card or your company card. Does it even matter? And if so, why?

Best Accounting Tools for E-Commerce Businesses
E-commerce

Best Accounting Tools for E-Commerce Businesses

For small e-commerce businesses with little time or expertise, not making the right choice would be costly and time-consuming. To help you with your selection, we’ve taken a look at the best accounting tools in the market.

A Guide to How Small Companies in UK Can Survive Lockdown 3.0
Government Grant

A Guide to How Small Companies in UK Can Survive Lockdown 3.0

Entering into the 3rd lockdown, times are tough. If businesses are to survive, they need to make use of the special government lockdown grants available to them. We take you through 4 useful ones.

Understanding Value Added Tax (VAT) for UK Amazon Sellers
Tax

Understanding Value Added Tax (VAT) for UK Amazon Sellers

Once you’ve crossed an annual turnover of £85,000 within the last 12 months, you must register for VAT with HM Revenue and Customs (HMRC), but what’s next? Find out how much to charge and how to reclaim VAT.

Documents to Prepare Before Registering Your Company
Incorporation

Documents to Prepare Before Registering Your Company

A guide of the most common legal documents you’ll need to prepare to get your startup registered and running as a working business.

7 Tips for Improving the Accuracy of Your Accounting for Small Businesses in the UK
Accounting

7 Tips for Improving the Accuracy of Your Accounting for Small Businesses in the UK

If you want to achieve better accuracy in terms of your accounting, heed these advice reviewed suggested and reviewed by our expert in-house accountants.

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?