VAT Payments and New Penalties

From 1 April 2010 most businesses will be required to file VAT returns online and also pay the VAT due online. However, existing businesses with a turnover of less than £100k can continue to file paper returns and pay by cheque.

From 1 April 2010 all VAT payments made by cheque will be treated as being paid on the day the cleared funds reach the Taxman's account. Previously the VAT was treated as being paid on the working day the cheque reached the VAT Office. A cheque will normally take at least three working days to clear. Where VAT payment is received late more than once in 12 months you may have to pay a default surcharge (a penalty).

The Taxman will exercise his discretion not to charge a default surcharge for VAT periods that commenced before 1 April 2010, where the paper VAT form and the cheque payment are both received on time. VAT cheque payments for periods that begin on and after 1 April 2010 will have to clear the Taxman's bank account by the due date, or surcharges may apply.

Where the VAT return is submitted online the payment for any VAT due must also be made online. However this can cause problems where the VAT due for the quarter exceeds £10,000.

Many banks impose a daily limit of £10,000 for electronic payments for both business and personal accounts. Larger electronic payments can be made by CHAPs but this may involve bank charges of up to £35 per transaction. You need to check with your bank in advance about the best way to pay a large VAT bill electronically.

If your business is not already VAT registered but your sales are edging up towards the VAT compulsory registration threshold, (£70,000 from 1 April 2010), you need to be particularly careful about when you register. From 1 April 2010 there is a new set of penalties for failing to register for VAT on time. The penalty is based on the underpaid VAT. The minimum penalty will be 10% of the VAT due, and the maximum penalty 100%. The highest penalty will be charged where there has been deliberate concealment of the need to register for VAT.