VAT Payment: How to pay VAT online?

As an entrepreneur, your focus is naturally on your core business. In addition to trading your products, you will of course need to keep an eye on certain tax laws and keep your business in a proper accounting condition. If you are registered for VAT, you have to meet the relevant deadlines for advance VAT returns and payments and, depending on your turnover, interact with the HMRC.

HMRC VAT payment dates

When you have to make your VAT payments depends on your accounting or payment method. Here we distinguish between quarterly payment, the annual accounting scheme and payments on account, each of which we will discuss in more detail below. Monthly submission of VAT returns is also possible. All payment methods have their own special features, which you must take into account in your accounting. 

VAT payment due date: Quarterly payment

The traditional method of paying your VAT is based on four advance VAT returns per year, at the end of each quarter. Your payments are due with your advance VAT return and must be received in HMRC’s account by the last working day of the following month – which means you should instruct the transfer at least one or two working days in advance to be on the safe side. Penalties may apply retroactively in the event of late payments. 

Please note that you always transfer the amount that is entered on your advance VAT return as the tax liability for the quarter – even if advance payments have already been made and you would therefore still have a credit balance. Any overpayment will be returned to you as a VAT refund, but you are not allowed to deduct it from your tax payments. 

VAT payment deadline: Annual accounting scheme

Traditionally, VAT-registered companies file their advance VAT returns four times a year, as just described. The annual accounting scheme is different. Here, these four advance returns are waived and replaced by one per year. Nevertheless, you have to make several advance payments during the year. The amount is determined by your last submitted advance VAT return or estimated if your business is new.

When you submit your next advance VAT return, it will be offset against the advance payments and you will either receive money back if you have paid too much in advance or you will pay the difference if you have paid too little tax in advance. If your business usually pays more VAT than it takes in, the annual accounting scheme makes little sense for you, as you will only receive one VAT refund per year instead of four.

To apply for the annual accounting scheme, you must have an annual turnover of less than £1.35 million. You can apply as usual to HMRC, who should normally approve it if you meet the requirements. 

Payments on account

Companies that exceed an annual VAT payment burden of £2.3 million must make advance payments to HMRC. For this purpose, advance VAT returns must be submitted to HMRC on a quarterly basis, i.e. four times a year. The advance payments amount to 1/24 of the estimated annual liability and must be paid to HMRC in the second and third month of each VAT quarter. The last possible date for payment is the last working day of the second and third month of each quarter. 

In case of payments on account you are not allowed to pay seven days later in case of electronic payment method. This special permission does not apply in this case. 

The payments on account rule starts in the first quarter after you have exceeded the £2.3 million threshold. However, your payments remain the same until the start of the next annual cycle. The month in which your VAT quarter ends will determine when your next annual cycle begins. 

The following table reveals when your next annual cycle begins:

Monthly VAT returns

If quarterly or annual payments do not fit your business model, you can apply for monthly VAT returns. In this case, if you use an electronic payment method, you are allowed to remit VAT up to seven days after the due date. Once you have chosen the monthly payment method, you may be required to use it for one year before you are allowed to change to another frequency. You can apply for monthly VAT returns using form VAT 484. 

Late payments

If HMRC receives your remittances late, you will face appropriate consequences. HMRC will take action to collect the debt immediately, penalize you with a late payment penalty, or change your payments from quarterly to monthly. Pay attention to your deadlines to avoid the consequences. 

You can’t pay your VAT payments?

In the event that you cannot pay your VAT payments at the moment, you have the option of contacting HMRC and arranging a Time to Pay Arrangement (TTP). You can negotiate a way to pay off the due payment in installments. Provided you have always paid on time in the past and your business has not otherwise attracted negative attention, there is a good chance that HMRC will agree to your request.

VAT payment details: How to pay VAT

Now you already know when you have to make your VAT payments to HMRC. But how can you actually make your VAT payments? HMRC offers you a few different options that should simplify your payment. 

The payment methods at a glance:

• Faster Payment, CHAPS or Bacs
• Corporate debit or corporate credit card
• At your bank or building society
• Standing order

Faster Payment, CHAPS or Bacs

You can make payments to HMRC via Faster Payments, CHAPS or Bacs. To do this, you will also need your nine-digit VAT registration number. A payment via Faster Payment (online or telephone banking) will usually be received by HMRC on the same day or the day after, whether on a working day or a weekend day. Payments using CHAPS are received on the same business day, provided you make the transfer within your bank’s business hours. If you pay via Bacs, the transfer will take up to three business days.

Corporate debit or corporate credit card

Payments to HMRC can also be made by corporate debit or corporate credit card. Please note that these payments are subject to non-refundable fees. When making your payment, you will need to provide your nine-digit VAT registration number and expect the transfer to take three business days. 

At your bank or building society

Alternatively, you have the option of transferring the amount directly to HMRC via your bank or building society. However, this requires that you apply for paying-in slips at HMRC. It can take up to six weeks before you receive these, so planning ahead is crucial. Once you have the paying-in slips, you can pay in cash or by cheque. The transfer time is three business days. Your nine-digit VAT registration number is also required for payment.

Standing order

In case you use the annual accounting scheme or make payments on account, you can also pay via standing order. You should obtain permission for this method of payment directly when applying for the annual accounting scheme. Once you have received permission from HMRC, you can issue the standing order via form VAT 622 or via online or telephone banking. 

VAT payment postponed between March and June 2020

Due to the COVID 19 pandemic, companies were allowed to postpone VAT payment between March and June 2020. Companies that have taken advantage of this special permission now have two options to make the payment retrospectively. 

The simplest option is to make the deferred payment now through March 31, 2021. Alternatively, you can split the payment within the period from February 23 to June 21, 2021 and pay it off gradually. To do this, you can split the sum into two to eleven equal installments without interest. The payments are paid by direct debit – alternatives can be requested from HMRC. 

Summary

As a business in the UK, you have a comparatively wide range of options for making your VAT payments – whether it’s in the frequency of your VAT returns and payments, or in the payment method itself. So you can easily find a model that suits you and your business. The only important thing is that you submit your advance returns on time and make your payments within the deadlines.