Get ready for online VAT returns

New VAT rules come into force this spring. Wendy Short provides some guidance

From 1 April this year a change in the law will make it compulsory for all businesses with a turnover greater than £100,000 to file their VAT returns online. Any VAT due will have to be paid electronically, by direct debit.

The rules also apply to all businesses that register for VAT on or after 1 April 2010, regardless of turnover.

The first step towards using the VAT online service is to register your details with Her Majesty’s Revenue and Customs (HMRC) via the website and sign up for the VAT online service. This is a one-off procedure and HMRC has stressed that users do not need to have the latest hi-tech computer, or broadband, to use the online service. It has been designed to work effectively with a dial-up connection.

Only two exemptions apply to the new VAT online rules: businesses that are subject to an insolvency procedure; and businesses whose owners have a religious conscience objection to the use of computers and the internet.

To get started you will need five key pieces of information. Your VAT registration number and the postcode of your principal place of business can both be found on your VAT4 (Certificate of Registration).

Your effective date of registration for VAT is on the letter you received from HMRC confirming the new rules. The final month of your last VAT return, and the “Box 5” figure from this, will both be recorded on the your copy of that return.

Once you have enrolled for the service, you will receive information containing your user identification by e-mail. This will allow you to create your own password. It is advisable to keep a record of these details, as you will need them whenever you use the service.

After initial enrolment, users will be able to file a return online immediately, if one is due.

However, to be able to use other VAT online services, you will need an activation code (or PIN). This will be sent out by post, in an envelope marked “Government Gateway”.

Once you have this code you can update your VAT registration details, submit your EC Sales List (ECSL) using the online service, and submit your Reverse Charge Sales List (RCSL).

The activation code can take up to a week to arrive. It is only valid for 28 days. Failure to visit the website and activate the service will mean going through the registration process for a second time, and waiting for a new activation code to arrive by post.

Producers have the choice of using the free HMRC online filing software, or one of the commercially available programs. If you decide to use commercial software, it is best to ask your provider about the completion of your online VAT Return.

To prepare for electronic payments, it is a good idea to identify your preferred method (such as direct debit, internet banking, etc) and set up the necessary arrangements, before registration and enrolment.

If you choose to ask your accountant to submit your returns online, he or she will need to register and enroll for the VAT Online for Agents service. To do this they will need to go online and set themselves up as your “agent”, after which you will receive a letter, containing a unique authorisation code, and asking you to confirm the request. If you agree to the authorisation, pass the code immediately to your accountant, who will enter it online.

If you choose to pay using the online direct debit service, HMRC will collect the money from your nominated bank account a further three bank working days after the extended due date for your return. So, online VAT Direct Debit offers you more time to pay than any other method, normally a minimum of ten extra calendar days.

Paper copies of VAT returns will not be acknowledged, and the usual financial penalties will apply, until the online system is completed. Businesses whose turnover drops below the £100,000 threshold in the future will have to carry on using the online service. The HMRC has already indicated its intention to require all VAT-registered businesses to file their returns online and pay electronically by 2012, at the latest. 

Accountant’s viewpoint 
Chartered accountant Bill Ballard believes most producers will find it relatively simple to comply with online VAT registration. He is confident the system will work efficiently, and that inputting the information will not compromise financial security. “Overall, this seems like a sensible idea to save taxpayers’ money,” says Mr Ballard. “The system for submitting standard tax returns online has been working effectively for some time, and there is no reason why online VAT should not be the same.”

More information

HMRC 0845 0109000

Ballard Dale Syree Watson, Droitwich Spa, Worcestershire