Everything You Need To Know
What Is VAT? Understanding VAT For Business
VAT stands for Value Added Tax, and it is a tax charged on VAT registered businesses that sell goods or services. This sales tax is collected by businesses on behalf of the UK government, and it is charged to customers at a rate set by HM Revenue & Customs.
The rate also depends on what is being sold, but typically supplies get taxed at 20%. There are three main tax rates that businesses should be aware of:
- Standard rate - 20% (most goods and services)
- Reduced rate - 5% (energy supplies in home, gas and electricity)
- Zero rate - 0% (most food items, public transport, children’s clothing, books and newspapers)
When Do I Register For VAT?
When your business grows and gets to a stage where its annual sales of taxable goods and/or services exceed the £85,000 VAT threshold, you must register for VAT.
After registering, HMRC will send you a VAT registration certificate which confirms your VAT number, when to submit your first VAT Return and payment and your ‘effective date of registration’.
Businesses can also choose to voluntarily become VAT registered, providing that the goods and services you sell aren’t exempt from VAT charges. After registering, there are certain legal responsibilities that business owners must follow including:
- Charging the right amount of VAT
- Paying any VAT due to HMRC
- Submitting VAT returns
- Keeping VAT records and a VAT account
Making Tax Digital
Businesses must also be aware of HMRC’s new rules for ‘Making Tax Digital for VAT’. Most businesses are required to follow these rules from their first VAT Return period on/after 1st April 2019. Some businesses fall in the deferral group (indicated via letter from HMRC), this deferral group will follow rules from the VAT Return period starting on/after 1st October 2019.
Read our guide on new VAT rules here.
Business owners of registered UK businesses are typically required to submit a VAT Return to HMRC every 3 months, regardless of whether the business has any VAT to pay or reclaim. This 3 months is referred to as your business ‘accounting period’, and the VAT Return records:
- Your total sales and purchases
- The amount of VAT owed
- The amount of VAT that can be reclaimed
- What your VAT Refund from HMRC is
Paying Your VAT Bill
You must pay your business’ VAT bill before the deadline passes. The deadline will be shown on your VAT Return and the only exception to deadlines are if you use the Annual Accounting Scheme or ‘payments on account’. As with Corporation Tax, you must ensure your payment reaches HMRC’s bank account before the deadline. Surcharges apply if you don’t manage to make payments on time.
|Payment Method||Time Taken|
|CHAPS||Same day / next day|
|Online Banking||Same day / next day|
|Telephone Banking||Same day / next day|
|Direct Debit||3 working days|
|1st Time Direct Debit||5 working days|
|Bacs||3 working days|
|Bank / Building Society||3 working days|
HMRC sets up VAT online accounts for all businesses registered for VAT. You can check your VAT Return and payment deadlines online.
How To Pay Your VAT Bill
Businesses are required to pay VAT to HMRC electronically, most popularly paid through internet banking and direct debit. Latest rules state most businesses are not allowed to pay by cheque. If you are having issues paying your VAT, get in touch with HMRC as soon as you can.
Can I Take A Loan To Pay A VAT Bill? VAT Bill Finance
After setting up an established company, several business owners cite their first stumbling block in business as knowing how to treat and manage VAT. Particularly true in the early stages of trading, as the owner of a startup it’s likely you’ll be involved in all areas of operations, including VAT obligations.
Owing the government money is a situation that no business owner wants to end up in, but without enough solid working capital it can be difficult to make payments on time. At SME Loans, we offer VAT bill loans that provide a quick, secure way of financing VAT bills. The loans we offer are short-term, which suits the 3 month accounting period caps that HMRC sets.
Our VAT bill loans are unsecured. Easier to apply and get accepted for,‘unsecured’ means that you aren’t required to offer security to the lender as collateral for the loan. Our loans are also short-term making them the perfect solution for paying off HMRC’s tax debt. Businesses can access between £1,000 and £500,000 - repaying the money in small monthly installments with interest. After applying for a VAT bill loan, you can expect to receive the money in your account in just 24 hours.
Instead of requiring collateral, VAT bill loan lenders usually require a personal guarantee. This guarantee ensures that in the event your business defaults on loan repayments, you as the business owner becomes directly responsible for doing so. Please take this into consideration before taking out the loan.
Applying For A Loan To Pay A VAT Bill
Click on the application page. To ensure we match you with the best lender, we will ask for more information about your business. Please be ready to tell us:
- The name of your business
- The number of years you’ve been in business
- Your average monthly card sales
- The amount you are looking to borrow to cover your VAT bill obligations
You will then be directed to the next step, where you will be asked to disclose:
- Your title, first name and surname
- Your position in the business
- Your email and telephone number
Carefully read through the terms and conditions, if happy, click ‘get my quote’. From here your application will be processed and reviewed by one of our approved business finance suppliers, who will help you find the correct lender for your VAT loan.
One of our account managers will be in touch by phone or email to discuss the terms of your loan or advance agreement.
After carefully reading through the terms of agreement, please sign the relevant documentation and return to the lender. You will then be able to access the funds in your account in just 24 hours.
Can I Arrange A Payment Plan With HMRC To Pay VAT? HMRC's Payment Plans
If you don’t manage to pay your VAT bill before the deadline, be aware that HMRC will likely take ‘enforcement action’ as a way of getting the money from you. In the event you are not able to pay your bill, or have missed your last deadline - don’t panic. Contact HMRC as soon as you can, in these situations - regular, honest communication is key.
If you don’t think you’ll be able to pay before the deadline:
Contact: Business Payment Support Service - 0300 200 3835
If you miss your deadline:
Contact the relevant HMRC department / office that sent you the letter explaining you have missed your deadline.
Contact: Self Assessment Payment Helpline - 0300 200 3822
In certain situations, HMRC does allow businesses to set up payment plans to pay their VAT bill in instalments. The payment plans exist to help businesses who have poor cash flow and are struggling with payments. These payment plans increase the amount of time you have to pay your bill. When setting up your payment plan you will need to have your password and Government Gateway User ID to hand.
Please be aware that if you don’t take these actions when it comes to paying your VAT bill, enforcement actions that HMRC can take as a way of collecting the tax you owe include:
- Collecting the owed money through your earnings or pension
- Involving debt collection agencies
- Taking things you own and selling them
- Removing the money from your bank account directly
- Taking you to court
- Closing down your business or declaring you bankrupt
What’s more, not paying your VAT bill on time will mean you have to pay interest on all outstanding amounts. Penalties or surcharges may also be enforced.