VAT is one of the most confusing areas of tax law, and it’s a surprise to many that they are legally obliged to pay VAT on some goods online. Arriving at the deadline for filing your vat return with HMRC is also important for a number of reasons – not just because you may face fines if you miss it.
What is VAT?
VAT, or value-added tax, is a tax that is levied on the sale of goods and services in the European Union. The VAT rate in the EU varies from country to country, but is typically around 20%. VAT is charged on top of the price of the good or service, and is thus a “consumption tax.”
In order to collect VAT, businesses must register with their local tax authority and obtain a VAT registration number. They will then charge VAT on all sales of goods and services to customers within the EU. Customers can then claim a refund of the VAT paid on purchases if they are registered for VAT in their own country.
Businesses must also file periodic VAT returns, detailing the total amount of VAT collected and paid out. If a business does not pay its VAT bill on time, it may be subject to late payment penalties.
Different Types of VAT
There are two main types of VAT: Standard VAT and Reduced VAT. Standard VAT is the most common type of VAT and is applied to most goods and services at a rate of 20%. Reduced VAT is applied to certain goods and services at a reduced rate of 5% or 0%.
The standard rate of VAT is 20% and is applied to most goods and services. This includes things like:
-Food and drink
-Toiletries and cosmetics
-Most services including haircuts, restaurant bills, train tickets etc.
Some items are exempt from VAT altogether, such as books, children’s car seats and some medical products. For items that are subject to standard rate VAT, you will need to add 20% to the price you pay. So, if something costs £100, with VAT included the total cost would be £120.
Some items are subject to reduced rates of 5% or 0%. These include: -Energy saving materials for your home such as insulation -Children’s car seats -Water bills -Certain types of food such as fresh fruits and vegetables.
If an item is subject to reduced rate VAT, you will need to add either 5% or 0% to the price you pay, depending on the item.
Who Needs to Pay VAT?
If you are registered for VAT in the UK, you must pay VAT on most of the goods and services that you supply. This includes digital products and services.
You will need to pay VAT if your business:
– Is based in the UK
– Has a turnover of more than £85,000
– Sells digital products or services to customers in the EU
If you are based outside of the UK but sell digital products or services to customers in the UK, you will also need to pay VAT.
How to Pay for VAT?
Assuming that you are registered for VAT, there are a few ways that you can pay your VAT bill:
1. Online banking – most banks will offer online banking services which will allow you to set up a direct debit or make a one-off payment to HMRC. This is usually the simplest and most convenient way to pay your VAT bill.
2. By phone – you can also pay your VAT bill by calling the HMRC contact centre on 0300 200 3700.
3. By post – you can send a cheque or postal order (made payable to ‘HM Revenue and Customs’) to the following address:
HM Revenue and Customs
VAT Processing Centre
BX9 1AS United Kingdom
4. In person at a Post Office – you can also pay your VAT bill at any Post Office branch, using a special ‘Pay Your Bill’ form which you can get from the HMRC website or by calling the HMRC contact centre on 0300 200 3700.
5. Direct Debit – if you would like to spread the cost of your VAT bill, you can set up a Direct Debit mandate with HMRC. This can be done online through your personal tax account, or by calling the HMRC contact centre on 0300 200 3700. Please note that if you choose to pay by Direct Debit, payments will be taken 10 days after your VAT return is due.
Deadlines for VAT Payments
If you are registered for VAT, you must make sure that you pay the right amount of VAT to HMRC by the deadline. If you do not, you may be charged a penalty.
The deadline for paying VAT is the same as the deadline for filing your VAT Return. For most businesses, this is quarterly. The specific deadlines are:
* Quarter 1 (January to March) – 7 May
* Quarter 2 (April to June) – 7 August
* Quarter 3 (July to September) – 7 November
* Quarter 4 (October to December) – 7 February
If you miss the deadline, you will be charged a late payment penalty of 2% of the VAT due, plus interest on the outstanding amount.
In conclusion, paying VAT online is a fairly simple process that can be done in a matter of minutes. However, it’s important to make sure you do it on time, as missing the deadline can result in some serious penalties. If you’re not sure how to pay VAT online, we recommend checking out our step-by-step guide.