Taxing Times May 10

I run a business which is registered for VAT.  Each quarter I send the return and cheque off to HMRC 2 days before it is due.  However, I understand that I now need to send this in much earlier, is that right?

Answer:

HMRC has announced a change in how it treats VAT payments made by cheque and sent in the post.  HMRC used to treat the date it received the cheque as the payment date. From 1 April 2010 this changed and now the payment will be when the cleared funds reach HMRC’s bank account.  This means that from now on any VAT return paid by cheque the funds must have cleared HMRC’s bank account by the due date of the return, which means payment must be sent so that they arrive at least three working days before the end of the relevant month.  This does not affect a business that pays its VAT by electronic means.  Note that if a VAT return is filed online then any VAT due must be paid electronically.

However, HMRC has said it will operate a flexible approach in relation to the new rules which should avoid many thousands of pounds in penalties being incurred by those businesses that are unaware of the regulations that took effect from 1 April 2010.

The timing of the rule change is strange because most businesses (about 70%) will have to pay their VAT returns by electronic means for VAT periods beginning on or after 1 April 2010 under compulsory online filing regulations i.e. for quarters ending 30 June or later.  This means that many businesses will still settle their dues by cheque for VAT periods ending on 31 March, 30 April or 31 May, putting them at risk of a default surcharge if they are unaware of the new timing rule.

If your business turnover is more than £100,000, you will have to file your VAT return online for accounting periods that start on or after 1 April 2010 (and make you payments electronically).  For any readers starting a new business who have registered for VAT after April 1 2010, you will have to file online regardless of your turnover.

Any reader interested in discussing this topic further can telephone Graham Jennings on 01344 875000 or email graham.jennings@kirkrice.co.uk

Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.