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Summary

Standard VAT rate: 20%
E-Invoicing: permitted, but not mandatory
Reporting: Making Tax Digital – MTD
Digital service tax: no

Compliance and rates

 

VAT number format

In the UK, VAT number includes 9 digits and the prefix GB (block of 3, block of 4, block of 2 – e.g. GB999 9999 52).

 

VAT rates

The standard VAT rate in UK is 20%, with reduced rate of 5% on certain goods and services. Some things are exempt from VAT, such as postage stamps, financial and property transactions.

20% (Standard) – Applies to all taxable supplies, with certain exceptions

5% (Reduced) – Some goods and services, e.g. children’s car seats and home energy

0% (Zero) – Zero-rated goods and services, e.g. most food and children’s clothes

 

VAT payments and returns

All businesses with UK VAT number must submit periodic VAT reports and payments.

VAT Returns frequency

For all companies that operate in the UK, VAT returns must be submitted on a monthly, quarterly, or annually basis, depending on the accounting period chosen by the business entity.

Monthly – 1 calendar month and 7 days after the reported month ends

Quarterly – 1 calendar month and 7 days after the reported quarter ends

For 1 or 3 months, entity must submit the returns and pay tax within 1 calendar month and 7 days after the accounting period ends.

Penalties in case of late filings or misdeclarations

According to the governmental website, HMRC (Her Majesty’s Revenue and Customs) can charge penalties for non-compliance of up to:

  1. 100% of any tax under-stated or over-claimed if the company sends a return that contains a careless or deliberate inaccuracy
  2. 30% of an assessment if HMRC sends to business entity one that’s too low and the business entity doesn’t tell them it’s wrong within 30 days
  3. £400 if the company submits a paper VAT Return, unless HMRC has told them that they are exempt from submitting the return online

Penalties for late payment of VAT are as follows:

  • Up to 15 days late: no penalty
  • Late payment between 15 and 30 days: 50% of HMRC interest rate charge
  • Late payment after 30 days: 100% of HMRC interest rate charge, plus daily interest charge

 

Invoice requirements

Full VAT invoices issued in the UK must contain the following:

  • a unique, sequential number of the invoice
  • supplier / issuer data (company name, address, VAT number)
  • date of invoice issuance
  • customer data (address, VAT number and other data if available)
  • full description of goods and services provided (quantity and type)
  • net price per unit (excl. VAT)
  • total amount (excl. VAT)
  • any discounts if applicable
  • rate and amount of VAT applicable for the category of goods and services provided. If an item is exempt or zero-rated, must be clearly visible that there is no VAT calculated.
  • total amount of VAT
  • the invoice total (incl. VAT)

 

E-Invoicing

The Ministry of Defence and HMRC (Her Majesty’s Revenue and Customs) use eInvoicing extensively.

England – Some local authorities have individually implemented electronic invoicing solutions as part of their procurement activities. In January 2016, NHS (National Health Service) introduced mandatory electronic invoicing for the entire NHS.

Scotland – The Scottish Government is providing a national electronic invoicing solution through PECOS P2P and any Scottish public sector organisation can implement the solution regardless of the P2P or finance system in use.

Wales – currently working on the model of electronic invoicing.

In general, electronic invoicing is permitted, but not mandatory at this moment.

 

Making Tax Digital – MTD

MTD is a compulsory system of online tax filing, that is to be fully introduced by 2020-2021.

How to file the VAT return under MTD?
  1. Visit HRMC’s MTD page for VAT sign up
  2. Connect your HRMC account to your MTD compatible software
  3. Authorize your software to file VAT returns on your behalf and you’re done.
Who is affected by this obligation?

According to governmental web pages, VAT-registered businesses with a taxable turnover above the VAT threshold (£85,000) are required to follow the Making Tax Digital rules by keeping digital records and using software to submit their VAT returns.

Turnkey invoice compliance.

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