Independent VAT Consultant
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Moving to monthly VAT returns

Neil Warren explores whether submitting monthly VAT returns would be a good idea for a small business struggling with cashflow, and if it is possible to change from quarterly returns.

30th Jul 2020
Independent VAT Consultant
Columnist
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Many clients are worried they might not be able to pay their quarterly VAT returns on time due to the difficult trading issues they face following the Covid-19 crisis. This is a justifiable concern. A business I know asked, “Can I submit and pay monthly VAT returns instead of quarterly, so I can keep on top of my cashflow? I don’t want to be faced with a big bill every three months.”

The legislation

The legislation quotes a standard VAT return period of three months, which has always been the case since the nation’s favourite tax was introduced in the UK back in 1973. However, HMRC has the power to allow monthly returns, and also to make monthly returns compulsory where it is necessary for the protection of the revenue (VAT Regulations 1995, Reg 25(1) and (1)(c))

Repayment traders

HMRC’s policy has always been to allow a business that regularly submits repayment VAT returns to file monthly. In such cases, input tax will regularly exceed output tax because many sales are zero-rated or possibly subject to 5% VAT.

This is a welcome cashflow boost to these traders because they get their refunds more quickly. It is not acceptable to request monthly returns on the basis that there will be a couple of repayment periods due to, say, high capital expenditure over a limited period.

Payment on account traders

There is an opportunity for businesses that must make monthly payments on account to submit monthly returns as well. Monthly payments must be submitted by any business that annually pays more than £2.3m of VAT.  HMRC’s guidance says, “If making payments on account and submitting quarterly VAT returns does not suit your business you can choose to make VAT returns and payments monthly.”

Smaller traders

The client who requested monthly returns is not a big payer, so is there any scope for them to submit monthly returns with HMRC’s permission? The answer would appear to be ‘no’ as confirmed by VAT form 484, which is the form to notify HMRC of changes in business circumstances.

The request for monthly VAT returns (tick box) includes the note: “Monthly returns are only allowed if a business is in a regular repayment position.” The monthly return option for repayment traders is confirmed by HMRC’s policy manual VATAC1100.

Win: win solution

Why would a client want to risk incurring up to 12 default surcharges each year by submitting monthly returns if they are always a payer of VAT? My suggestion is that he continues to submit quarterly returns but makes advance payments on account to HMRC on a monthly basis.

The payments will be a credit on their account with HMRC, eventually being matched when they submit the quarterly return and balancing payment. The client won’t receive interest on the early payments but can sleep better at night knowing that they have ringfenced the VAT money. 

Replies (5)

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By Crouchy
30th Jul 2020 17:07

we have several small traders who are payment cases and file monthly returns, purely for cashflow and getting the payments out of the way, they dont trust themselves to hang on to the money for a quarter and would rather pay actual amounts than POA's.

the other overlooked benefit is that their record keeping is always up to date

all simply requested a change of filing frequency through their gateway account, HMRC never queried any of them

Thanks (1)
RLI
By lionofludesch
31st Jul 2020 07:25

Nation's favourite tax ?

Is there any evidence for this claim ?

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Replying to lionofludesch:
Quack
By Constantly Confused
31st Jul 2020 07:38

lionofludesch wrote:

Nation's favourite tax ?

Is there any evidence for this claim ?

I've never doubted Neil on anything, so for me the fact he says it must mean it is true :)

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Universe
By SteveOH
31st Jul 2020 10:58

There is also the opportunity to apply for the Annual Accounting Scheme for businesses with a turnover up to £1.35 million.

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By EnglishRose
03rd Aug 2020 19:35

Dreadful idea. I would rather we moved to annual VAT returns as that is less work. We need much much less admin for small businesses not yet more.

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