VAT retail schemes

VAT retail schemes are a special set of schemes used by retail businesses to account for VAT. The schemes are used by businesses that sell a significant amount of low value and/or small quantity items to the public with different VAT liabilities.

The use of the schemes can save businesses a significant amount of time in calculating the amount of VAT due to HMRC on each sale. In many circumstances, it would be extremely difficult for these businesses to account for VAT using standard VAT accounting. By using the VAT retail scheme, retailers are able to calculate VAT due to HMRC at the standard, reduced and zero rates of VAT as a proportion of sales. Usually this is done on a day by day basis.

There are a number of standard VAT retail schemes:

  • the point of sale scheme
  • two apportionment schemes
  • two direct calculation schemes

There is also the option of using a bespoke scheme. The use of a bespoke scheme is obligatory for retailers with a turnover excluding VAT of £130 million or more.

The decision as to which retail scheme to be used is usually driven by a combination of looking at the scheme that provides the best result for the business in question combined with the cost of using the scheme with the important caveat that HMRC are of the opinion that the chosen scheme is fair and reasonable.

Source:HM Revenue & Customs | 08-04-2024

Paying VAT on goods from EU to Northern Ireland

There are special procedures for moving goods in and out of Northern Ireland. Under the Northern Ireland Protocol, all Northern Ireland businesses continue to have access to the whole UK market. 

There is specific guidance published by HMRC that should be followed for goods that are received into Northern Ireland from a supplier in the EU.

  • If you are registered for VAT in the UK and receive goods in Northern Ireland from countries in the EU, you will normally account for the VAT through your VAT Return. You will need to account for the VAT at the same rate that you would have paid if you had bought them from a UK supplier. This VAT is known as acquisition VAT, and you can normally reclaim some or all of this if the acquisitions relate to VAT taxable supplies that you make.
  • If you are not VAT registered and receive goods in Northern Ireland from countries in the EU, your supplier will charge VAT at the local rate in the EU country from which the goods are supplied. If you are not already registered for VAT in the UK and buy goods worth £90,000 (£85,000 prior to 1 April 2024) you may be required to register for VAT.

You may also be required to complete an Intrastat Supplementary Declaration if your acquisitions of goods from the EU exceed an annual amount. The delivery terms threshold for both arrivals and dispatches is currently £24 million.

Source:HM Revenue & Customs | 08-04-2024

Spring Budget 2024 – VAT registration threshold changes

The taxable turnover threshold that determines whether businesses should be registered for VAT will increase from £85,000 to £90,000 from 1 April 2024. The taxable turnover threshold that determines whether businesses can apply for deregistration will be increased from £83,000 to £88,000 on the same date. It had been previously announced that the rates would be frozen until 31 March 2026. However, the Chancellor’s announcement makes the first change in 7 years to the rates and has been designed to help SMEs.

Businesses are required to register for VAT if they meet either of the following two conditions:

  1. At the end of any month, the value of the taxable supplies made in the past 12 months or less has exceeded £90,000 (2023-24: £85,000); or
  2. At any time, there are reasonable grounds for believing that the value of taxable supplies to be made in the next 30 days alone will exceed £90,000 (2023-24: £85,000)

Businesses with no physical presence in the UK may also have a liability to be VAT registered in the UK if they supply any goods or services to the UK (or expect to in the next 30 days).

Source:HM Treasury | 05-03-2024

Eligibility for the VAT Flat Rate Scheme

The VAT Flat Rate scheme is open to VAT registered businesses that expect their taxable turnover in the next 12 months to be no more than £150,000, excluding VAT. The annual taxable turnover limit is the total of everything that a business sells during the year that is not VAT exempt.

Under the scheme rules, businesses pay VAT as a fixed percentage of their VAT inclusive turnover. The actual percentage used depends on the type of business. There is a special 1% discount for businesses in their first year of VAT registration.

If any of the following apply, you will not be eligible to join the scheme:

  • you left the scheme in the last 12 months;
  • you committed a VAT offence in the last 12 months, for example VAT evasion;
  • you joined (or were eligible to join) a VAT group in the last 24 months;
  • you registered for VAT as a business division in the last 24 months;
  • your business is closely associated with another business;
  • you’ve joined a margin or capital goods VAT scheme; or
  • you are using the Cash Accounting Scheme.

Once you join the scheme you can usually continue using it provided your total business income does not exceed, or you do not expect it to exceed, £230,000 (including VAT) in a 12-month period. You must also leave the scheme if you expect your total income in the next 30 days alone to be more than £230,000 (including VAT). There are special rules if the increased turnover is temporary.

If you think that the scheme may be beneficial for your business, please get in touch and we can help you consider your options.

Source:HM Revenue & Customs | 11-02-2024
using the flat rate VAT scheme to minimise your business VAT in the UK; wimbledon accountant; farringdon accountant; london accountant

Make VAT Efficient: Understand Flat Rate VAT

Maximizing VAT Efficiency: Understanding the VAT Flat Rate Scheme

Navigating the complexities of VAT can be a challenging endeavor for UK businesses, especially when looking for ways to simplify and potentially reduce tax liabilities. CIGMA Accounting, a leading UK accounting firm, sheds light on the VAT Flat Rate Scheme – an often underutilized yet beneficial approach for eligible businesses.

What is the VAT Flat Rate Scheme?

The VAT Flat Rate Scheme is a government initiative designed to streamline the VAT process for small businesses. Instead of calculating VAT based on the standard method (the difference between VAT charged to customers and VAT paid on purchases), businesses pay a fixed rate of VAT to HMRC. This simplification can lead to reduced administrative burdens and potential cost savings.

  • Fixed VAT Rate: Pay a set percentage of your VAT-inclusive turnover.
  • Simplified Accounting: Less paperwork and simpler VAT calculations.
  • First-Year Discount: Enjoy a 1% discount in your first year of VAT registration



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Eligibility Criteria

To join the VAT Flat Rate Scheme, businesses must:

  • Be VAT-registered.
  • Have a VAT taxable turnover of £150,000 or less (excluding VAT).

Joining and leaving the scheme

Joining is straightforward – either apply online when registering for VAT or use form VAT600FRS if already VAT registered. Leaving the scheme is equally simple; however, businesses must exit if they are no longer eligible or if their turnover exceeds certain thresholds.

Calculate your flat rate

The VAT flat rate varies depending on your business type. For instance, accountancy services have a rate of 14.5%, while catering services range from 4.5% to 12.5%, depending on the period. Notably, ‘limited cost businesses’ – those spending less on goods – are subject to a higher rate of 16.5%.

CIGMA Accounting’s Expert Insights

  1. Assessment is Crucial:
    Before opting for the scheme, it’s vital to assess whether it’s financially beneficial for your business. Factors like your industry, expenses, and turnover play a crucial role in this decision.

  2. Navigating Limited Cost Trader Rules:
    Introduced in April 2017, these rules can significantly affect your VAT rate. Understanding whether you fall into this category is essential for accurate tax computation.

  3. Monitor Your Turnover:
    Stay vigilant about your turnover. Exceeding the £230,000 threshold means you’ll need to exit the scheme.

  4. Capital Purchases Exception:
    Remember, you can still reclaim VAT on certain capital assets over £2,000.

  5. Professional Guidance is Key:
    VAT legislation can be complex. Seeking advice from experienced accountants like CIGMA Accounting can ensure compliance and optimize your tax position.

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When you must register for VAT

The taxable turnover threshold, which determines whether businesses should be registered for VAT, is currently £85,000. The taxable turnover threshold that determines whether businesses can apply for deregistration is £83,000.

Businesses are required to register for VAT if they meet either of the following two conditions:

  1. At the end of any month, the value of the taxable supplies made in the past 12 months or less has exceeded £85,000; or
  2. At any time, there are reasonable grounds for believing that the value of taxable supplies to be made in the next 30 days alone will exceed £85,000.

The registration threshold for relevant acquisitions from other EU Member States into Northern Ireland is also £85,000.

Businesses with no physical presence in the UK may also have a liability to be VAT registered in the UK if they supply any goods or services to the UK (or expect to in the next 30 days).

Source:HM Revenue & Customs| 09-10-2023

VAT Capital Goods Scheme

The VAT Capital Goods Scheme (CGS) is a means of spreading the initial VAT recovery in respect of certain assets over either 5 or 10 years. The scheme seeks to agree a fair and reasonable attribution of VAT to taxable supplies and non-taxable supplies relating to the use of an asset over its lifetime.

The adjustment period for land and buildings is 10 years and for other CGS assets, 5 years. This adjustment period also considers any non-business use of the asset. The CGS is intended primarily for partly exempt businesses. However, businesses can change direction over the adjustment period and be subject to making CGS adjustments some years after an asset was purchased.

The CGS currently applies to:

  • Land and building (including extensions, alterations and refurbishments) with a cost (net of VAT) of £250k or more.
  • Computers, or computer equipment, with a cost (net of VAT) or £50k or more.
  • Ships and boats with a cost (net of VAT) of £50k or more.
  • Aircraft with a cost (net of VAT) of £50k or more

The scheme does not apply if:

  • the assets are acquired solely for resale;
  • you spend money on assets which are solely for resale; or
  • assets are acquired, or you spend money on assets, which are wholly used for non-business purposes.
Source:HM Revenue & Customs| 25-09-2023

Activities subject to the scope of VAT

There are a number of conditions that must be satisfied for an activity to be within the scope of UK VAT.

An activity will fall within the scope of VAT when all the following conditions are met:

  • it is done for consideration;
  • it is a supply of goods or services;
  • the supply is made in the UK;
  • it is made by a taxable person; or
  • it is made in the course or furtherance of any business carried on or to be carried on by that person.

One of the conditions that needs to be carefully considered when deciding whether an activity is within the scope of VAT is the concept that the supply must be made in the course or furtherance of business. 

This idea of 'business' is one of the less well-known conditions. However, the concept of business is an important condition that determines whether a business must charge VAT on their sales, known as output VAT, and on its ability to recover VAT, known as input tax.

In most cases it will be clear whether an activity is ‘business’ related and should fall within the scope of VAT. However, in cases where the result is less clear cut, there is a test based on an historic court case where the court identified six factors or indicators to determine whether an activity was ‘business’ related. The test should be applied to individual activities separately. 

HMRC’s internal manuals provide the following example:

Imagine a person registered as a self-employed plumber who now and again renovates old cars. They do not automatically have to charge tax when selling those cars. This is because it would be hard to see the activity of car renovation being included within their business as a plumber.

On the other hand, if the car activity can be seen to have the attributes of a business in its own right, then the plumber would have to charge tax on the sales.

Source:HM Revenue & Customs| 18-09-2023
VAT recovery when leasing business vehicles; farringdon accountant; london accountant

How to Navigate VAT Recovery When Leasing Business Vehicles

How to claim work from home tax relief in the UK

The world of VAT (Value-Added Tax) can seem complicated, especially when it involves leasing vehicles for your business. While leasing often provides flexibility and financial benefits, the intricacies of VAT recovery on these leases can be confusing. This guide aims to simplify VAT treatment related to motor expenses, helping your business make the most out of tax recovery options.

What You Need to Know About VAT and Leasing Vehicles

Leasing Company’s Perspective:

If you run a leasing company, good news! You can generally recover the VAT incurred on the purchase of cars, provided they are leased at a commercial rate. This can offer you considerable savings and lower your operating costs.

Business Leasing a Car:

If your business is leasing a car for official purposes, the rules are a bit different. The tax authority, HMRC, allows the recovery of 50% of the VAT charged on what it considers a ‘qualifying car.’ This 50% that you can’t reclaim is designed to cover any private use of the car. It means that your business can recover the other 50% subject to the normal rules of input VAT recovery.

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Special Cases: Taxis and Driving Schools

For businesses that lease cars primarily for use as taxis or for providing driving instruction, there is a beneficial exception. You can reclaim all of the VAT charged on the lease if the vehicle is a qualifying car and is intended primarily for either:

  1. Hire with a driver for carrying passengers, or
  2. Providing driving instruction

This exception allows you to maximize VAT recovery and keep your business running efficiently.

Self-Drive Hire and Daily Rental

Do note that the 50% restriction on VAT recovery isn’t limited to just leasing scenarios; it also applies to self-drive hires or daily rentals. If you are hiring a car simply to replace an ordinary company car that’s temporarily off the road, the 50% VAT recovery block will still apply.

Key Takeaways

  1. Leasing Companies:
    Can usually recover all the VAT incurred if the cars are leased at commercial rates.
  2. Businesses Leasing Cars:
    Can generally recover 50% of the VAT on a qualifying car, the remaining 50% is blocked to account for private use.
  3. Special Business Uses:
    Taxis and driving schools may reclaim 100% of the VAT.
  4. Self-Drive or Daily Rentals:
    Subject to the 50% VAT recovery block, similar to leased cars.

Understanding the intricacies of VAT recovery on leased vehicles can go a long way in optimizing your business expenses. If you need specialized advice tailored to your business needs, feel free to reach out to our team of expert accountants who can guide you through the VAT maze.

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VAT for no consideration; london accountant; farringdon accountant

VAT Supplies for No Consideration: What You Need to Know

VAT Supplies for No Consideration: What You Need to Know

Value Added Tax, commonly known as VAT, is a part of everyday business transactions. However, not all supplies are straightforward, and the landscape gets complicated when dealing with VAT supplies for no consideration. This concept seems counter-intuitive because, in most cases, ‘supply’ generally involves a transaction for some kind of ‘consideration,’ whether in the form of money or in-kind.

But did you know that UK VAT law includes provisions for transactions made without consideration? These are considered supplies for VAT purposes. In this article, we’ll delve into these less talked about, yet critical areas of VAT compliance, guided by the information from HM Revenue and Customs (HMRC).

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What is Consideration?

Although the VAT Act 1994 doesn’t provide a legal definition for ‘consideration,’ HMRC refers to a definition from the EC 2nd VAT Directive Annex A13. It defines “consideration” as everything received in return for the supply of goods or services, including incidental expenses like packing, transport, and insurance. However, it should be noted that this directive is no longer in force after Brexit, but the conceptual framework remains.

Supplies for No Consideration: The Exceptions

1. Permanent Transfer/Disposal of Business Assets

If a business permanently transfers or disposes of its assets, the transaction is treated as a supply for VAT purposes. For example, if you give away a business laptop to an employee, this counts as a supply and is VAT applicable.

2. Temporary Application of Business Assets to Non-Business Use

When a business uses its assets for non-business activities temporarily, it constitutes a supply for VAT purposes. Suppose your business owns a vehicle primarily used for business tasks but occasionally gets used for private purposes. In that case, that non-business usage is subject to VAT.

3. Self-Supply of Goods or Services

When a business uses its own resources to generate goods or services, this ‘self-supply’ is considered a supply for VAT purposes. For instance, a construction company building its own office must account for VAT on the self-supplied labor and materials.

4. Retention of Business Assets After VAT Deregistration

If a business retains its assets after deregistering for VAT, this also constitutes a supply for VAT purposes. VAT will be calculated based on the market value of the assets at the time of deregistration.

5. Non-Business Use of Services with Recovered Input Tax

If services are put to private or other non-business use where input tax had previously been recovered, it is deemed a supply for VAT purposes.

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VAT supplies for no consideration

In most cases, a supply of goods or services for VAT purposes is deemed to have taken place in return for consideration. This is usually payment in money but can also be of a “non-monetary” nature, such as goods or services supplied in return. There is no legal definition of consideration in the VAT Act 1994.

However, HMRC quotes the following definition in its internal manuals that was taken from the EC 2nd VAT Directive Annex A13 (at the same time accepting that this is no longer in force after Brexit).

The expression “consideration” means everything received in return for the supply of goods or the provision of services, including incidental expenses (packing, transport, insurance etc), that is to say not only the cash amounts charged but also, for example, the value of the goods received in exchange or, in the case of goods or services supplied by order of a public authority, the amount of the compensation received.

There are additional provisions in UK law that treat certain transactions made for no consideration as supplies for VAT purposes. These are:

  • the permanent transfer/disposal of business assets;
  • the temporary application of business assets to a non-business use; and
  • the self-supply of goods or services.

A supply is also deemed to have taken place if business assets are retained after VAT deregistration and where services are put to a private or other non-business use where input tax had been previously recovered.

Source:HM Revenue & Customs| 21-08-2023

VAT recovery when leasing vehicles

The VAT treatment of motoring expenses is relevant to any business that incurs VAT on motor expenses.

We have covered below some important points to be aware of concerning the recovery of input tax (VAT) when leasing vehicles:

  • Leasing company recovering VAT on purchase of cars. A leasing company can usually recover the VAT incurred as long as the cars are leased at a commercial rate.
  • Business leasing a car and recovering the VAT. If a business leases a ‘qualifying car’ for business purposes, they can generally recover 50% of the VAT charged. The 50% disallowed covers any private use of the car. The business can reclaim the remaining 50% of the VAT charged, subject to the normal rules.
  • Cars leased primarily for taxi or driving instruction. A business can reclaim all of the VAT charged on the lease if the car is a qualifying car and the business intends to use it primarily for:
    • hire with a driver for carrying passengers; or
    • providing driving instruction.
  • The 50% block on VAT recovery also applies to self-drive hire (daily rental) as well as leasing. This restriction applies if the car is hired simply to replace an off the road ordinary company car.
Source:HM Revenue & Customs| 13-08-2023

Tax and duty on goods sent from abroad

There are special rules to help ensure that goods sent from abroad are taxed appropriately. The aim is to not disadvantage UK businesses supplying goods in the UK, for example, by having to compete with VAT free imports. This includes goods that are new or used and bought online, bought abroad and shipped to the UK, and goods received as gifts.

This means that in order to receive your goods you may have to pay VAT, Customs Duty or Excise Duty if they were sent to:

  • Great Britain (England, Wales and Scotland) from outside the UK.
  • Northern Ireland from countries outside the UK and the European Union (EU).

VAT is charged on all goods (except for gifts worth £39 or less) sent from:

  • outside the UK to Great Britain; and
  • outside the UK and the EU to Northern Ireland.

Online marketplaces that facilitate the sale of goods are usually responsible for collecting and accounting for the VAT. If the VAT has not been collected, then you will have to pay VAT to the delivery company either before the goods are delivered or when you collect them. If you have to pay VAT to the delivery company, it’s charged on the total package value which includes the value of the goods, postage, packing, insurance and any duty owed.

Generally, there are no Customs Duty payable on non-excise goods worth £135 or less. There are various rates payable above this level and on excise goods of any value.

Source:HM Revenue & Customs| 13-08-2023

VAT treatment of road fuel costs

There are four options for the VAT treatment of road fuel costs.

  1. Treat all of the VAT as input tax because 100% is used for business purposes. This option only applies to fuel for cars used exclusively for business purposes, such as pool cars.
  2. Treat all of the VAT as input tax and either apply the fuel scale charges or account for VAT on the basis of amounts charged to the employee. If a business makes a charge for the private use of fuel it can opt to account for output tax on the basis of the amount charged to the employee. Or it can opt to apply the fuel scale charge instead of accounting for VAT on the charge made. The scale charge is a fixed amount and saves business car users the chore of keeping detailed records of actual private mileage.
  3. Use detailed mileage records to separate the business mileage from the private mileage. This option will require businesses to keep detailed mileage records to demonstrate that only the business element of the VAT charged on fuel has been treated as input tax.
  4. Treat no VAT incurred as input tax. This option allows businesses to choose not to pay the relevant scale charges. If they do this, they must not recover input tax on any road fuel bought by the business. Any business that opts to use this concession must do so in respect of all fuel used by it in all vehicles including commercial vehicles.

This is a complex area and care needs to be taken to ensure the best possible method is used considering the many variables at play.

Source:HM Revenue & Customs| 04-08-2023

Transferring a VAT registration

The taxable turnover threshold that determines whether businesses should be registered for VAT is currently £85,000. The taxable turnover threshold that determines whether businesses can apply for deregistration is £83,000. The thresholds are currently frozen until 31 March 2026.

When there is a change of business ownership or legal status it is possible to transfer a VAT registration so that the new business will keep the same VAT number.

Businesses can apply for a VAT registration transfer online or by post. It usually takes three weeks for HMRC to confirm the transfer.

HMRC’s guidance states the following:

If you are selling your business:

  • cancel your accountant’s access to your VAT online account – for example if you authorised them to deal with your VAT;
  • cancel any direct debits on your VAT online account, and
  • you must also give your records to the buyer if you are passing on your VAT number.

If you are buying a business:

  • contact HMRC within 21 days of the transfer application if you want to keep the seller’s accountant,
  • replace any self-billing arrangements with new ones, and
  • set up new direct debits on your VAT online account.

Businesses may wish to start afresh and can opt to get a new VAT number. This will mean cancelling the existing VAT registration and re-registering for VAT. Whilst this requires additional paperwork it may be preferable as the VAT registration starts with a clean slate.

Source:HM Revenue & Customs| 31-07-2023

Check a UK VAT number is valid

The check a UK VAT number service is available at: www.gov.uk/check-uk-vat-number.

This service allows users to check:

  • if a UK VAT registration number is valid; and
  • the name and address of the business the number is registered to.

The service also allows UK taxpayers to obtain a certificate to prove that they checked that a VAT registration number was valid at a given time and date. This is especially important where you take on new suppliers as HMRC could withdraw your ability to reclaim the input VAT you have paid if the VAT number is subsequently found to be invalid. The certificate will provide valuable evidence for a taxpayer to prove that they acted in good faith should HMRC challenge input tax recovery or seek payment of lost VAT.

The European Commission's website also includes an on-line service which allows taxpayers to check if a quoted VAT number from anywhere in the EU is valid. The on-line service is available at: https://ec.europa.eu/taxation_customs/vies/#/vat-validation

Source:HM Revenue & Customs| 17-07-2023
Understanding UK VAT; a comprehensive guide for business owners; london accountant

Understanding UK VAT: A Comprehensive Guide for Business Owners

Value Added Tax (VAT) is a tax on goods and services in the UK. If you’re a business owner, it’s important to understand how VAT works and how to comply with the regulations. This guide covers everything you need to know about UK VAT, including registration, rates, and filing requirements.

WHAT IS VAT AND WHO NEEDS TO REGISTER?​

WHY IS VAT CHARGED?​

The UK government adds Value Added Tax (VAT) to goods and services as a way to generate revenue for public spending. VAT is a tax on the value added to a product or service at each stage of its production or distribution. It is essentially a consumption tax that is paid by the end consumer.

The VAT system works by businesses charging VAT on the goods and services they sell, and then reclaiming the VAT they have paid on their own purchases. This means that VAT is effectively a tax on the final consumer, as the amount of VAT paid at each stage of production or distribution is passed on to the next buyer until it reaches the end consumer.

Who needs to register for VAT?

If you are a business owner and your annual turnover exceeds the VAT threshold (currently £85,000), you are required to register for VAT with HM Revenue and Customs (HMRC). However, you can also choose to register voluntarily if your turnover is below the threshold. Once registered, you will need to charge VAT on your sales and pay VAT on your purchases, and file regular VAT returns with HMRC.

Different types of VAT rates and when to charge them.

In the UK, there are three main rates of Value Added Tax (VAT) that apply to goods and services, as well as a number of VAT exemptions and reduced rates.

Summary of VAT rates and VAT-exempt goods and services; london accountant

Standard rate

The standard rate of Value Added Tax (VAT) in the UK is currently 20%. This means that for most goods and services sold in the UK, the VAT charged will be 20% of the sale price.

The standard rate of VAT applies to most goods and services, with a few exceptions that are either exempt from VAT or subject to reduced rates. Some examples of goods and services that are subject to the standard rate of VAT include:

  • Electronic goods such as televisions and computers
  • Clothing and footwear, except for children’s clothing and footwear which are zero-rated
  • Vehicles and fuel
  • Alcohol, tobacco, and soft drinks
  • Most services, such as legal and accounting services, advertising, and consultancy services

When a business is registered for VAT, they are required to charge VAT on their sales at the appropriate rate, which in most cases will be the standard rate of 20%. The business must then declare the VAT they have charged on their sales to HM Revenue & Customs (HMRC), usually on a quarterly basis.

If the business has incurred VAT on their own purchases, they can reclaim this input tax against the VAT they have charged on their sales. This means that the business effectively only pays VAT on the value they have added to the product or service they are selling.

The standard rate of VAT can have an impact on consumer behaviour, as it increases the cost of goods and services for consumers. Businesses may also need to adjust their pricing to account for the VAT they are charging. The standard rate of VAT is reviewed periodically by the government, and may be adjusted in response to economic conditions or other factors.

Reduced rate

The reduced rate of Value Added Tax (VAT) in the UK is a rate of 5% charged on certain goods and services. This reduced rate is lower than the standard rate of VAT, which is currently set at 20%.

The reduced rate of VAT applies to a specific list of goods and services, which include:

  • Domestic fuel and power, such as gas and electricity used in a home
  • Children’s car seats and booster cushions
  • Mobility aids for the elderly and disabled, such as wheelchairs and stairlifts
  • Sanitary products, such as tampons and sanitary towels
  • Energy-saving materials, such as insulation and solar panels
  • Certain types of renovations and repairs to private residences

Businesses that sell goods or services that are subject to the reduced rate of VAT are still required to register for VAT if their taxable turnover exceeds the VAT registration threshold. This means that they will need to account for the VAT they charge on their sales, but at a lower rate than the standard rate of VAT.

If a business is registered for VAT and they sell goods or services that are subject to the reduced rate of VAT, they can still reclaim the input tax they have paid on their own purchases. This means that they can offset the VAT they have paid against the VAT they have charged, resulting in a lower overall VAT liability.

The reduced rate of VAT can have an impact on consumer behaviour, as it reduces the cost of certain goods and services. For example, the reduced rate of VAT on sanitary products makes these items more affordable for consumers.

It’s important to note that the government can change the goods and services that are subject to the reduced rate of VAT, and that businesses should regularly check whether their products and services still qualify for the reduced rate.

Zero rate

The zero rate of Value Added Tax (VAT) in the UK is a rate of 0% charged on certain goods and services. This means that these goods and services are still subject to VAT, but the rate of VAT charged on them is set at 0%. This differs from exempt goods and services which are not subject to VAT at all.

The zero rate of VAT applies to a range of goods and services, including but not limited to:

  • Food and drink, including most groceries, milk, bread, and fruit and vegetables.
  • Books, newspapers, and magazines
  • Children’s clothing and footwear
  • Some medical equipment and supplies
  • Some services related to international travel, such as flights and hotel accommodation

Businesses that sell goods or services that are subject to the zero rate of VAT are still required to register for VAT if their taxable turnover exceeds the VAT registration threshold. This means that they will need to account for the VAT they charge on their sales, even though the rate is 0%.

If a business is registered for VAT and they sell goods or services that are subject to the zero rate of VAT, they can still reclaim the input tax they have paid on their own purchases. This means that they can offset the VAT they have paid against the VAT they have charged, resulting in a lower overall VAT liability.

The zero rate of VAT can have an impact on consumer behavior, as it reduces the cost of certain goods and services. For example, the zero rate of VAT on children’s clothing and footwear makes these items more affordable for families.

It’s important to note that the government can change the goods and services that are subject to the zero rate of VAT, and that businesses should regularly check whether their products and services still qualify for the zero rate.

Which goods and services are exempt from VAT?

The following are examples of VAT exempt items, which do not need to be added to your total VAT taxable turnover:

  • Financial services, including investments and insurance.
  • Garages, parking spaces and even houseboat moorings.
  • Education and training.
  • Property, land, and buildings.
  • Healthcare.
  • Funeral plans.
  • Charity events.
  • Antiques.
  • Gambling.
  • Sports activities.
  • Get the full list here.

VAT returns and deadlines for filing: Annual vs. Quarterly

As a VAT-registered business owner in the UK, you are required to file VAT returns with HM Revenue and Customs (HMRC) on a regular basis. The frequency of your VAT returns will depend on the size of your business and the amount of VAT you are liable to pay.

Generally, businesses with a turnover of less than £85,000 can file VAT returns annually, while those with a turnover of more than £85,000 must file returns quarterly. It’s important to keep track of your VAT deadlines and ensure you file your returns on time to avoid penalties and interest charges. The deadline for filing and paying your VAT is usually one month and seven days after the end of your VAT period.

Annual VAT Returns

In the UK, businesses that are registered for Value Added Tax (VAT) are required to submit an Annual VAT Return in addition to their quarterly VAT returns.

The Annual VAT Return is a summary of the business’s VAT records for the entire VAT accounting year, which runs from the start of the business’s VAT registration date to the end of the 12th month. The Annual VAT Return is due within two months and 10 days of the end of the VAT accounting year.

The Annual VAT Return includes the following information:

  • Total VAT charged on sales made during the VAT accounting year
  • Total VAT paid on purchases made during the VAT accounting year
  • Total VAT owed or overpaid for the VAT accounting year
  • The business’s VAT registration number and the accounting period covered by the return

Quarterly VAT Returns

In the UK, businesses that are registered for Value Added Tax (VAT) are required to submit quarterly VAT returns to HM Revenue & Customs (HMRC).

The VAT quarters run as follows:

  • 1 April to 30 June
  • 1 July to 30 September
  • 1 October to 31 December
  • 1 January to 31 March

The deadline for submitting a VAT return and making a payment to HMRC is one month and seven days after the end of the VAT quarter.

The VAT return must include the same information as an annual return, described above.

How to Complete a VAT Return?

To complete a VAT Return, businesses must calculate the total amount of VAT charged on sales and subtract the total amount of VAT paid on purchases. If the result is a positive figure, the business will owe VAT to HM Revenue & Customs (HMRC). If the result is a negative figure, the business will be due a VAT refund from HMRC.

If a business fails to submit their VAT Return or submit it late, they may be subject to penalties and interest charges. Additionally, if the Annual VAT Return shows that the business owes VAT to HMRC, this must be paid within the payment deadline to avoid further penalties.

It’s important for businesses to keep accurate records of their VAT transactions throughout the year in order to complete their Annual VAT Return correctly and on time. Some businesses may choose to hire an accountant or bookkeeper to help them with this task.

HMRC Penalties Relating to VAT

If a business that is registered for Value Added Tax (VAT) fails to submit their VAT returns or submit them late, they may be subject to penalties and interest charges. The VAT penalties system was updated on 1 January 2023, and is now based on a points system.

For each return you submit late, you’ll receive a penalty point until you reach the penalty point threshold. When you reach the threshold, you’ll receive a £200 penalty. You’ll also receive a further £200 penalty for each subsequent late submission while you’re at the threshold.

The penalty point threshold (PPT) is set by your accounting period. The threshold is the maximum points you can receive. Businesses who submit returns annually have a PPT of 2, those who submit quarterly have 4, and those who submit monthly have 5.

In addition to the penalties, HM Revenue & Customs (HMRC) may charge interest on any late payments of VAT owed.

If a business is experiencing difficulties with submitting their VAT returns on time or making VAT payments, they should contact HMRC as soon as possible to discuss their situation. HMRC may be able to offer support and advice to help the business get back on track with their VAT obligations.

VAT schemes for small businesses

There are several VAT schemes available for small businesses in the UK, designed to simplify the VAT process and reduce administrative burdens. The most popular scheme is the Flat Rate Scheme, which allows businesses with a turnover of less than £150,000 to pay a fixed percentage of their turnover as VAT, rather than calculating the actual VAT owed on each transaction. This can save time and money for small businesses, as well as providing a predictable VAT liability.

Here are some of the most common VAT schemes for small businesses:

VAT schemes for small businesses; london accountant
  1. The Flat Rate Scheme allows eligible businesses to pay a fixed rate of VAT to HM Revenue & Customs (HMRC) based on their turnover. The flat rate takes into account the business’s specific industry sector and is usually lower than the standard VAT rate. Businesses using the FRS are not able to reclaim VAT on purchases, except for certain capital assets over £2,000.
  1. This scheme allows eligible businesses to make one VAT payment per year, rather than four payments per year. The business must make interim payments throughout the year based on their estimated VAT liability, and then reconcile their account and pay any balance due or claim a refund at the end of the year.

This scheme allows eligible businesses to account for VAT on the basis of cash received and paid, rather than on invoices issued and received. This can help businesses to manage their cash flow, as they do not have to pay VAT on sales until they have been paid by their customers.

This scheme is designed for businesses that sell a high proportion of low-value items to non-VAT registered customers. The scheme allows businesses to calculate their VAT liability based on a percentage of their total retail sales, rather than on each individual sale.

This scheme is designed for businesses that sell second-hand goods, works of art, antiques, or collectors’ items. It allows businesses to pay VAT on the difference between the purchase price and the selling price of the goods, rather than on the full selling price.

Small businesses should carefully consider which VAT scheme is most appropriate for their business and seek professional advice if necessary.

Common mistakes to avoid when dealing with VAT

Dealing with VAT can be complex and mistakes can be costly. Here are some common mistakes to avoid when dealing with Value Added Tax (VAT) in the UK:

 

  1. Not registering for VAT on time:
    Businesses must register for VAT with HM Revenue & Customs (HMRC) if their taxable turnover exceeds the VAT registration threshold, which is currently £85,000. Failure to register for VAT on time can result in penalties and interest charges.
  2. Not charging the correct rate of VAT:
    Businesses must charge the correct rate of VAT on their sales, depending on the type of goods or services being sold. Charging the wrong rate of VAT can result in penalties and interest charges.
  3. Failing to keep accurate records:
    Businesses must keep accurate records of their VAT transactions, including sales and purchases, in order to complete their VAT returns correctly. Failure to keep accurate records can result in errors and omissions on VAT returns, which can lead to penalties and interest charges.
  4. Not reclaiming VAT on eligible purchases:
    Businesses can reclaim VAT on eligible purchases, such as goods and services used for business purposes. Failure to reclaim VAT on eligible purchases can result in increased costs for the business.
  5. Missing VAT return deadlines:
    Businesses must submit their VAT returns and make VAT payments on time to avoid penalties and interest charges. Missing VAT return deadlines can result in penalties and interest charges.
  6. Failing to notify HMRC of changes to business circumstances:
    Businesses must notify HMRC of any changes to their business circumstances that may affect their VAT registration or VAT liability. Failure to do so can result in penalties and interest charges.
  7. Not understanding VAT rules and regulations:
    VAT can be complex, and it’s important for businesses to have a good understanding of the rules and regulations surrounding VAT. Failure to understand VAT rules and regulations can lead to mistakes and errors on VAT returns, which can result in penalties and interest charges.

It’s important for businesses to take their VAT obligations seriously and to seek professional advice if they are unsure about any aspect of VAT.

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VAT Exempt services

A business that incurs expenditure on taxable and exempt business activities is partially exempt for VAT purposes.

This means that the business is required to make an apportionment between the activities using a 'partial exemption method' in order to calculate how much input tax is recoverable.

Businesses that make both taxable and exempt supplies must keep a separate record of exempt supplies along with details of how much VAT has been reclaimed.

There are a number of partial exemption methods available. The standard method of recovering any remaining input tax is to apply the ratio of the value of taxable supplies to total supplies, subject to the exclusion of certain items which could prove distortive. The standard method is automatically overridden where it produces a result that differs substantially from one based on the actual use of inputs. It is possible to agree a special method with HMRC.

The VAT incurred on exempt supplies can be recovered subject to two parallel de-minimis limits.

The tests are met where the total value of exempt input tax:

  1. Is under £625 a month (£1,875 a quarter/£7,500 a year); and
  2. Is less than half of the total input tax incurred.

If both tests are met the VAT can be recovered. Businesses that are partially exempt, need to complete this calculation on a quarterly basis as well as completing an annual calculation.

Source:HM Government| 19-06-2023

Transfer of Business as a Going Concern

The transfer of a business as a going concern (TOGC) rules concern the VAT liability on the sale of a business. Normally the sale of the assets of a VAT registered or VAT registerable business will be subject to VAT at the appropriate rate.

Where the sale of a business includes assets and meets certain conditions the sale will be categorised as a TOGC. A TOGC is defined as 'neither a supply of goods nor a supply of services' and is therefore outside the scope of VAT. Under the TOGC rules no VAT would be chargeable on a qualifying sale.

All the following conditions are necessary for the TOGC rules to apply:

  • The assets must be sold as part of a 'business' as a 'going concern'. In essence, the business must be operating as such and not just an 'inert aggregation of assets'.
  • The purchaser intends to use the assets to continue the same kind of business as the seller.
  • Where the seller is a taxable person, the purchaser must be a taxable person already or become one as the result of the transfer.
  • Where only part of a business is sold it must be capable of separate operation.
  • There must not be a series of immediately consecutive transfers.
  • There are further conditions in relation to transactions involving land.

The TOGC rules can be complex, and both the vendor and purchaser of a business must ensure that the rules are properly followed. The TOGC rules are also mandatory which means that it is imperative to establish from the outset whether a sale is or is not a TOGC. For example, if VAT is charged in error, the buyer has no legal right to recover it from HMRC and would have to seek to recover this 'VAT' from the seller.

Source:HM Revenue & Customs| 22-05-2023
VAT on entertainment expenses, london accountant, business entertainment vat

Know when to recover VAT on entertainment expenses

When it comes to business entertainment expenses, understanding the treatment of Value Added Tax (VAT) is crucial for businesses operating in the UK. While VAT can generally be reclaimed on goods and services used for business purposes, there are specific rules governing the recovery of VAT on entertainment expenses. In this blog post, we will explore the conditions under which businesses can claim back UK business entertainment VAT, distinguish between business and employee entertainment, and provide insights on VAT recovery in different scenarios.

 

What is VAT Recovery and When Can Businesses Reclaim Input VAT?

Value Added Tax (VAT) is a consumption tax charged on most goods and services in the UK. Businesses are typically eligible to recover, or reclaim, the VAT they pay on goods and services used for business purposes. This allows them to offset the VAT paid against the VAT they charge on their own taxable supplies. However, there are some specific exceptions when it comes to business entertainment expenses.

 

Defining Business Entertainment VAT

Business entertainment refers to the provision of hospitality to individuals who are not employees of the business, without charge. It encompasses a range of activities such as providing food and drink, accommodation, tickets to events, and more. It is essential to note that employee entertainment is distinct from business entertainment and is treated differently for VAT recovery purposes.

 

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Can you recover business entertainment VAT?

In general, businesses cannot reclaim input tax incurred on the provision of business entertainment expenses. This means that the VAT paid on business entertainment activities cannot be offset against the VAT the business charges on its supplies. However, there are certain exceptions for business entertainment provided to overseas customers.

 

VAT on entertainment expenses for Overseas Customers

If business entertainment is provided to customers who are not ordinarily resident or carrying on a business in the UK, including the Isle of Man, there may be a possibility to reclaim the VAT incurred. However, if there is a ‘private benefit’ to the individual enjoying the entertainment, an output tax charge may be applied, negating the recoverable input tax.

 

Can you reclaim VAT on entertainment expenses for employees?

Employee entertainment refers to the provision of entertainment for the benefit of employees, such as staff parties, team-building exercises, and staff outings. In most cases, VAT incurred on employee entertainment is considered input tax and is not blocked from recovery under the business entertainment rules.

 

vat on entertainment expenses, business entertainment vat, london accountant

Can you reclaim VAT on entertainment expenses for directors and partners?

VAT incurred on entertainment provided solely for directors or partners of a business is not considered input tax, as it is not used for a business purpose. Consequently, the VAT cannot be reclaimed. However, if directors or partners attend staff parties alongside other employees, the VAT incurred is eligible for recovery.

 

Can you reclaim VAT on entertainment expenses when employees host clients?

When employees act as hosts to non-employees, the VAT incurred on entertainment costs is considered input tax. However, this input tax is blocked under the business entertainment rules, thus making it non-recoverable.

 

Business Entertainment VAT events including Employees and Non-Employees

If an event is organised to entertain both employees and non-employees, businesses can only reclaim the VAT incurred on entertaining their employees. The portion of input tax related to entertaining non-employees is blocked from recovery under the business entertainment rules. Proper apportionment of VAT should be undertaken, considering the rules on partial exemption.

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Your tasks if a VAT-registered business

The taxable turnover threshold that determines whether businesses should be registered for VAT is currently £85,000. Businesses with turnover below this level can also apply for a voluntary VAT registration.

Businesses charge VAT on their sales. This is known as output VAT and the sales are referred to as outputs. Similarly, VAT will be payable on most goods and services purchased by the business. This is known as input VAT.

The output VAT is collected from the customer by the business on behalf of HMRC and must be regularly paid over to HMRC. However, the input VAT suffered on most (but not all) goods and services purchased for the business can be deducted from the amount of output tax owed to HMRC.

If your input tax is greater than your output tax, HMRC will owe you a refund.

As a VAT-registered business you must:

  • include VAT in the price of all goods and services at the correct rate;
  • keep records of how much VAT you pay for things you buy for your business;
  • account for VAT on any goods you import into the UK; 
  • report the amount of VAT you charged your customers and the amount of VAT you paid to other businesses by sending a VAT return to HM Revenue and Customs (HMRC) – usually every 3 months; and
  • pay any VAT you owe to HMRC.
Source:HM Revenue & Customs| 01-05-2023

VAT on imported vehicles

The Notification of Vehicle Arrivals (NOVA) is an online notification system for vehicles entering the country for permanent use on UK roads.

You can use the service if you are:

  • a VAT-registered business that does not use the secure registration scheme;
  • not VAT-registered and you have imported a vehicle from the EU into Northern Ireland;
  • not VAT-registered and you have imported a vehicle from Ireland using a delayed declaration.

Under the system anyone who brings a vehicle into the UK using NOVA is normally required to notify HMRC within 14 days of the import date. Until this is done it will not be possible to register or licence a vehicle with the DVLA or DVA. A penalty system applies to late notifications.

A NOVA notification is not required if the vehicle has an engine size of 48cc or less (7.2kw or less if it’s electric) or if the secure registration scheme is used.

In order to make a notification to HMRC about a vehicle the following information will be required:

  • The make, model, engine size and body type of your vehicle
  • The Vehicle Identification Number (VIN)
  • The existing registration number of the vehicle (if applicable)
  • The value of the vehicle
  • Mileage details

Whilst the easiest way to bring a vehicle into the UK will be by submitting the notification online there is also a paper form (VAT NOVA1) that can be used.

Source:HM Revenue & Customs| 24-04-2023

VAT guidance for overseas sellers

New simplified VAT guidance for overseas sellers has been published by HMRC. The guidance also includes a new translation into simplified Mandarin to help support Chinese retailers that sell goods online into the United Kingdom.

The guidance provides further information about the rules and obligations for overseas sellers that using online marketplaces and selling goods directly to UK consumers. This includes details of when and how VAT and import duties must be charged to customers by international sellers.

In 2022, the UK imported £83.3 billion in goods and services from China and Hong Kong. Online shopping accounted for 26.5% of all UK retail sales in 2022, with a substantial number of goods being bought from international sellers via online marketplaces.

Commenting on the publication of the simplified guidance, HMRC’s Director for Individuals and Small Business Compliance, said:

'We have acted on feedback from businesses to simplify and compile this online guidance into one, easily accessible place on GOV.UK. We have also recently published a simplified Mandarin translation of our guidance following research conducted with Chinese businesses.

By making our VAT and import duty rules easier to understand, we will be able to increase tax compliance levels for online sellers. We are asking UK freight, customs and shipping agents to help us reduce the tax gap by sharing this simplified guidance with their customers. By working together, we can help everyone pay the right amount of tax at the right time.'

Source:HM Revenue & Customs| 02-04-2023

Changes in VAT penalties

The first monthly returns and payments affected by HMRC’s new VAT penalty regime were due by 7 March 2023. The new VAT penalty rules apply to the late submission and / or late payments of VAT returns for VAT return periods beginning on or after 1 January 2023. 

Under the new regime, there are separate penalties for late VAT returns and late payment of VAT as well as a new methodology to the way interest is charged. This replaces the old default surcharge regime and for most taxpayers should represent a fairer system.

The new system is points-based. This means that taxpayers will incur a penalty point for each missed VAT submission deadline. At a certain threshold of points, a financial penalty of £200 will be charged and the taxpayer will be notified. The threshold varies depending on the required submission frequency (monthly, quarterly, annual). For quarterly VAT returns, the penalty points threshold will be 4 points. The penalty points will reset to zero following a period of compliance, for quarterly returns this requires 12-months of compliance. There are also time limits after which a point cannot be levied. 

The new regime also sees the introduction of two new late payment penalties. A first payment penalty of 2% of the unpaid tax that remains outstanding 16-30 days after the due date. The second payment penalty increases to 4% of any unpaid tax that is 31 or more days overdue. To help with the introduction of the new system, HMRC has confirmed that it will not be charging a first late payment penalty for the first year of the new regime (1 January – 31 December 2023) once the debt is paid in full within 30-days of the payment due date or if a payment plan is agreed.

Late payment interest will be charged from the date a payment is overdue, until the date it is paid in full. Late payment interest is calculated as the Bank of England base rate plus 2.5%.

Source:HM Revenue & Customs| 20-03-2023
Do I need to submit a UK VAT return?

Do I need to submit a VAT return?

Value Added Tax, or VAT, is a tax added to many goods and services sold by VAT-registered businesses. This tax is often a 20% addition to the price of an item, though there are goods and services for which VAT is charged at a reduced or zero rate.

All businesses with a VAT taxable turnover for the financial year of over £85,000 must register to pay VAT. These businesses must submit a VAT return every 3 months, detailing how much VAT they have charged and how much they have paid to other businesses.

VAT registered businesses must submit a VAT return even if they have no VAT to pay or reclaim.

HOW TO CALCULATE vat TAXABLE TURNOVER

Your VAT taxable turnover is the total value of all goods and services you sell. This does not include items that are exempt from VAT or fall out of the scope of VAT, but it does include items that are ‘zero-rated’ for VAT.

This means that no VAT is actually charged on zero-rated goods or services, but they do count towards your total taxable turnover.

This total must also include:

  • Goods hired or loaned to customers.

  • Business goods you used for personal reasons.

  • Goods that you exchanged for other goods rather than cash (bartered or part-exchanged goods) and those given as gifts.

  • Building work over £100,000 that your business did itself.

Reduced or zero-rated goods and services

The following are examples of zero-rated items for VAT:

  • Most food and drink for human consumption. This excludes catering, alcoholic drinks, soft drinks, crisps, and hot food.

  • Sewerage services.

  • Aircraft repair and maintenance.

  • Printing of brochures and pamphlets.

  • Books, maps, newspapers, and magazines.

  • Children’s clothes.

  • Insulation.

  • Most goods exported to a country outside the UK.

  • Get the full list here.

The following are examples of reduced rate items for VAT, often at 5%:

  • Mobility aids for the elderly.

  • Electricity and gas for domestic use.

  • Heating oil and solid fuel for domestic use.

  • Renovating a dwelling that has been empty for at least two years.

  • Children’s car seats.

  • Get the full list here.

VAT EXEMPT GOODS AND SERVICES

The following are examples of VAT exempt items which do not need to be added to your total VAT taxable turnover:

  • Financial services, including investments and insurance.

  • Garages, parking spaces and even houseboat moorings.

  • Education and training.

  • Property, land, and buildings.

  • Healthcare.

  • Funeral plans.

  • Charity events.

  • Antiques.

  • Gambling.

  • Sports activities.

  • Get the full list here.

Out of scope goods and services

VAT cannot be charged on items that are ‘out of scope’ and do not need to be added to your VAT taxable turnover. These include:

  • Goods and services you buy and use outside of the UK.

  • Statutory fees, like congestion charges.

  • Goods sold as part of a hobby, like stamps and models.

  • Charity donations.

Need help with your VAT return?

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You can fill out the form below for a free quote. You’ll receive a response within one business day.


New VAT penalty regime

The first monthly returns and payments affected by HMRC’s new VAT penalty regime are due by 7 March 2023. The new rules apply to the late submission and / or late payments of VAT returns for VAT return periods beginning on or after 1 January 2023. 

Under the new regime, there are separate penalties for late VAT returns and late payment of VAT as well as a new methodology to the way interest is charged. This replaces the old default surcharge regime and for most taxpayers should represent a fairer system.

The new system is points-based. This means that taxpayers will incur a penalty point for each missed VAT submission deadline. At a certain threshold of points, a financial penalty of £200 will be charged and the taxpayer will be notified. The threshold varies depending on the required submission frequency (monthly, quarterly, annual). For quarterly VAT returns, the penalty points threshold will be 4 points. The penalty points will reset to zero following a period of compliance, for quarterly returns this requires 12-months of compliance. There are also time limits after which a point cannot be levied. 

In addition, the new system sees the introduction of two new late payment penalties. A first payment penalty of 2% of the unpaid tax that remains outstanding 16-30 days after the due date. The second payment penalty increases to 4% of any unpaid tax that is 31 or more days overdue. To help with the introduction of the new system, HMRC has confirmed that will not be charging a first late payment penalty for the first year of the new regime (1 January – 31 December 2023) once the debt is paid in full within 30-days of the payment due date or if a payment plan is agreed.

Late payment interest will be charged from the date a payment is overdue, until the date it is paid in full. Late payment interest is calculated as the Bank of England base rate plus 2.5%.

Source:HM Revenue & Customs| 27-02-2023
guide to compliance obligations for UK companies

Your guide to UK Compliance Obligations

Companies need to follow rules set out by many different government bodies, written in various legislative documents. When setting up and running a limited company, you have to keep in mind all of the following:

  • Complying with applicable industry regulations set out by professional regulators – for example, the Financial Conduct Authority, the Office of Rail and Road, the Law Society or the Environment Agency
  • Complying with finance regulations – such as tax, payroll, HMRC, accounting, record keeping, Companies House and anti-money laundering regulations
  • Employment law and workers’ rights
  • Health and safety for workers and visitors to your offices/site
  • General Data Protection Regulation (GDPR) 
  • Contracts and agreements with third parties
  • Sector-specific permits, licences, permissions

It’s an expansive list! Our accountants at CIGMA Accounting are CIMA-registered Management Accountants. They specialise in working with businesses to form companies, create strategies, and making sure you’re on the right side of financial regulation.

CIGMA Accounting helps businesses around the UK grow while navigating the red tape. You can contact us here for a free quote.

Limited company obligations

This article is going to focus on the Companies Act 2006, which is the main piece of law setting out rules and expectations for limited companies. The Act outlines what are called ‘compliance obligations’ for companies. These are actions which companies are obliged to do in order to comply with the rules.

company records

1. Registered office

Companies must provide an office address which is able to receive letters and documents. This address must be in the country where the company was registered. You are legally required to display the address on all communications with clients, and your website.

2. Confirmation statement

Companies must file a Corporation Tax Return to HMRC, even if the company has no tax to pay. This must include details about:

  • Capital allowances claimed for business asset purchases
  • Gains on assets sold
  • Directors’ loans that are unpaid
  • Reliefs to be claimed
  • Any losses carried forward

Businesses with a trade volume over £85,000 must also register with HMRC for VAT.

Your final tax obligation is Pay As You Earn (PAYE). The PAYE system collects taxes from employees at the source. You as the employer are responsible for running this system. This involves deducting income tax and National Insurance Contributions.

3. Directors

Aside from financial records, companies are also expected to keep up to date details about their addresses, directors, and shareholders. Incorporated businesses must supply the following information to Companies House:

This is an annual report which must record your:

  • Office address
  • Business activity
  • Details of directors
  • Ownership and division of shares

4. Event Driven Reporting

Companies must inform Companies House of changes such as:

  • Change of directors, shareholders, or their personal details
  • Change of office address
  • Sales of shares
  • Change of company name or constitution


This is in addition to the three statutory registers which businesses must keep.

Companies must appoint at least one individual as a director. Directors are legally responsible for running the company and ensuring reports are made. The director of a UK company does not have to be a UK resident and can live anywhere in the world. Directors must supply their personal information, including an address, which will be publically available.

financial statements

A company’s annual accounts are prepared at the end of a financial year. These accounts must include:

  • A balance sheet of what the company owns, owes, and is owed by others
  • An account of sales, running costs, and profit / loss made over the year
  • A director’s report

This account needs to be sent to all shareholders, HMRC, Companies House, and anyone who attends the company’s general meetings.

You are also required to appoint an auditor for each financial year. An auditor’s job is to report back to a company’s members and the government about the company’s accounts. They are meant to give a true and fair view of the company’s financial records and whether they have been done properly.

Workplace pensions

UK companies are required to put certain employees into a pension scheme, a process called ‘automatic enrolment’. If you employ at least one person aged between 22 and state pension age, who earns more than £10,000 per year, this applies to you. 

Business licences

A business licence is a permit issued by the government or a professional body that outlines how specific business activities should be carried out. The most easily recognisable example is that of a liquor licence, which authorises businesses to sell alcohol and under what terms they can do so.

The list of licences is extensive, but you can use HMRC’s online tool to find out which licences your business may need.

steps to complaince obligations

Mastering your compliance obligations is essential for success – this step-by-step guide provides an introduction to understanding & fulfilling them!

Step 1 - Conduct a Self-Assessment and Risk Analysis
Analysis 20%

When getting started, first conduct a self-assessment and risk analysis to identify any current or potential noncompliance issues. Evaluate the nature and breadth of your operations, processes, policies and regulations that may affect your compliance needs. This assessment can identify any areas that require actionable strategies to help ensure compliance maturity at all levels of your organisation.

Step 2 - Research Your Relevant Regulatory Requirements and Standards.
Research 40%

Complying with regulations and standards is an essential step for keeping up with compliance obligations. It’s important to research the relevant regulations and standards that apply to your organisation, in order to understand exactly what is required from you in terms of compliance. Identify any applicable laws, industry standards, or government policies which are relevant to your operations and need to be adhered to, as not doing so could result in harsh penalties for noncompliance.

Step 3 - Identify Gaps Between Your Compliance & Regulations.
Identify Gaps 60%

Once you’ve identified the applicable regulations, standards and policies, it’s important to review your current compliance procedures and ensure that they meet the required expectations. Compare your existing process to the regulations and identify any gaps between the two. If there are any discrepancies or potential risks, it’s essential to address them as soon as possible in order to avoid penalties or other consequences of noncompliance.

Step 4 -Implement an Effective Compliance Program.
Implement Program 80%

Before developing your compliance program, it’s essential to ensure that you understand the expectations and obligations of each applicable regulation. Once you’ve done this, you can create a comprehensive compliance program which will guide you through the process of meeting all legal requirements. This program should include risk and compliance assessments, processes for monitoring and ensuring ongoing compliance, and plans for regularly tracking and improving performance.

Step 5 -Monitor, Measure, and Document Your Compliance Efforts.
Monitor 100%

Once you have developed a compliance program, it is necessary to continuously monitor, measure, and document any efforts to ensure that your organisation is compliant. All changes to processes made as part of ensuring compliance must be tracked and regularly assessed. Your organisation should also institute an effective system for processing internal complaints related to any violations of law or policy. This system will provide critical information that can be used by the compliance team when it comes to improving compliance efforts.

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VAT – transfer of business as a going concern

The transfer of a business as a going concern (TOGC) rules concern the VAT liability of the sale of a business. Normally the sale of the assets of a VAT registered or VAT registerable business will be subject to VAT at the appropriate rate.

Where the sale of a business includes assets and meets certain conditions, the sale will be categorised as a TOGC. A TOGC is defined as 'neither a supply of goods nor a supply of services' and is therefore outside the scope of VAT. Under the TOGC rules no VAT would be chargeable on a qualifying sale.

All the following conditions are necessary for the TOGC rules to apply:

  • The assets must be sold as part of a 'business' as a 'going concern'. In essence, the business must be operating as such and not just an 'inert aggregation of assets'.
  • The purchaser intends to use the assets to carry on the same kind of business as the seller.
  • Where the seller is a taxable person, the purchaser must be a taxable person already or become one as the result of the transfer.
  • Where only part of a business is sold it must be capable of separate operation.
  • There must not be a series of immediately consecutive transfers.
  • There are further conditions in relation to transactions involving land.

The TOGC rules can be complex, and both the vendor and purchaser of a business must ensure that the rules are properly followed. The TOGC rules are also mandatory which means that it is imperative to establish from the outset whether a sale is or is not a TOGC. For example, if VAT is charged in error, the buyer has no legal right to recover it from HMRC and would have to seek to recover this 'VAT' from the seller.

Source:HM Revenue & Customs| 20-02-2023

VAT – unpaid tax collectors

If you are required to register your business for VAT purposes you are joining that reluctant band of business owners that are obliged to collect tax for HMRC.

The amount of VAT you have added to your sales, less VAT you have paid out on qualifying purchases, will be paid to HMRC at the required intervals, usually quarterly. As long as your customers pay you the VAT added, over time there should be no effect on your profits, but there can be dramatic impacts on cash flow.

Unfortunately, this is not the end of your responsibilities to act as unpaid tax collectors.

If you employ a person, and HMRC considers that their salary should be reduced by Income Tax and National Insurance contributions, it is your legal duty to make these deductions and pay them directly, every month, to the Collector of Taxes.

As with VAT registered traders, there is no increase in costs to an employer if employee contributions (Income Tax and National Insurance) are considered in isolation. However, employers also have to pay a separate National Insurance Contribution (NIC) and these are added to monthly payments to HMRC.

Therefore, these employer NIC contributions are a cost to the employer’s business.

We are not aware of the overall costs to UK businesses of calculating PAYE and NIC to meet these demands, but it must be considerable.

The alternative would be to make employees responsible for calculating Income Tax and NIC deductions and paying their taxes individually instead of receiving wages and salaries net of these deductions.

However, UK business owners need to be aware of these obligations and take them into account as the tax collection activities will take up time or increase overheads.

Source:Other| 29-01-2023

When you must register for VAT

The taxable turnover threshold, that determines whether businesses should be registered for VAT, is currently £85,000.

The taxable turnover threshold that determines whether businesses can apply for deregistration is £83,000.

It was confirmed as part of the Autumn Statement 2022 measures that the taxable turnover registration and deregistration thresholds will be frozen at the current rates until 31 March 2026.

Businesses are required to register for VAT if they meet either of the following two conditions:

  1. At the end of any month, the value of the taxable supplies made in the past 12 months or less has exceeded £85,000; or
  2. At any time, there are reasonable grounds for believing that the value of taxable supplies to be made in the next 30 days alone will exceed £85,000.

The registration threshold for relevant acquisitions from other EU Member States into Northern Ireland is also £85,000.

Businesses with no physical presence in the UK may also have a liability to be VAT registered in the UK if they supply any goods or services to the UK (or are expected to in the next 30-days).

Source:HM Revenue & Customs| 09-01-2023