How to Pay VAT

VAT (or Value Added Tax) is a tax charged on the sale of goods and services in the UK. If your business is VAT-registered, you’ll need to understand how to pay VAT and report it to HM Revenue & Customs (HMRC). In this guide, we’ll take you through the steps of paying VAT.

How to Pay VAT

Register for VAT

Before you can pay VAT, you must register your business for VAT if your taxable turnover exceeds the VAT registration threshold. At the time of this post the threshold is £90,000. You can register online through the HMRC website, and once registered, you’ll receive a VAT registration number.

Determine Your VAT Liability

Once registered, you’ll need to charge VAT on applicable sales and keep track of input VAT (VAT you’ve paid on purchases). The difference between the VAT you’ve charged on sales and the VAT you’ve paid on purchases is your VAT liability.

VAT Schemes

There are different VAT schemes available, such as the Flat Rate Scheme and the Cash Accounting Scheme, which may affect how you calculate and pay VAT. Choose the scheme that best suits your business’s needs and consult with a tax advisor if you’re unsure.

VAT Returns

VAT-registered businesses are required to submit VAT returns to HMRC typically on a quarterly basis. These returns detail the VAT charged on sales (output VAT) and the VAT paid on purchases (input VAT) during the reporting period. You can submit your VAT return online using MTD enabled software.

Payment Deadlines

The deadline for paying VAT is usually one month and seven days after the end of the VAT period. It’s crucial to know your VAT return deadlines and ensure you have sufficient funds available to make the payment on time. Late payments may result in penalties and interest charges from HMRC.

Making VAT Payments

You can pay your VAT bill using various methods, including:

Direct Debit: Set up a direct debit with HMRC to make regular VAT payments automatically.
Online Banking: Use your bank’s online banking service to make a VAT payment to HMRC.
BACS or CHAPS: Make a payment directly from your business bank account using the BACS or CHAPS system.
At Your Bank: Visit your bank branch and make a VAT payment over the counter.

Record Keeping

Maintaining accurate records of your VAT transactions, including sales, purchases, and VAT payments, is essential for compliance and audit purposes. Keep copies of invoices, receipts, and VAT returns for at least six years.

How to pay VAT in brief

Paying VAT is a key aspect of running a VAT-registered business in the UK. By understanding the process, staying organised, and meeting your obligations on time, you can ensure compliance with HMRC regulations and avoid potential penalties. Effective VAT management contributes to the financial health and sustainability of your business.

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