Value Added Tax (VAT) is a consumption tax levied on most goods and services supplied in the UK. With the registration threshold now at £90,000 (from April 2024), and Making Tax Digital (MTD) mandatory for all VAT-registered businesses, staying on top of UK VAT compliance is critical for UK-based and Indian-owned UK businesses alike.

UK VAT Registration Threshold & Deadlines

• Mandatory registration threshold: £90,000 of taxable turnover in any rolling 12-month period (from April 2024).
• Businesses must register within 30 days of the month-end in which they exceed the threshold.
• Voluntary registration is possible below the threshold — beneficial for businesses wishing to reclaim input VAT on purchases.
• De-registration threshold: £88,000 — businesses whose taxable turnover falls and is expected to stay below this level can apply to deregister.

Making Tax Digital (MTD) for VAT

From April 2022, all VAT-registered businesses (regardless of turnover) must comply with MTD for VAT. This means:

• You must keep digital records of all VAT transactions.
• You must submit VAT returns using HMRC-approved MTD-compatible software (Xero, FreeAgent, QuickBooks, Sage, etc.) — manual submission via the HMRC VAT portal is no longer permitted.
• There must be a digital link between your accounting records and the software that submits the VAT return — no manual re-keying of figures allowed.

VAT Schemes Available

• Standard Rate Scheme: Calculate output VAT on all sales and deduct input VAT on all purchases — most common.
• Flat Rate Scheme (FRS): Pay a fixed % of gross turnover (varies by sector) — simpler but may not suit all businesses. Available if VAT-exclusive turnover is under £150,000.
• Cash Accounting Scheme: Account for VAT on the basis of payments received and made (not invoice date) — helps cash flow for businesses with slow-paying customers.
• Annual Accounting Scheme: File one VAT return per year, with interim payments — simplifies administration for stable businesses.

VAT Return Filing Deadlines

For most businesses, VAT returns are filed quarterly. The return and payment are due one calendar month and 7 days after the end of the VAT period. For example:

• VAT period ending 31 March → return and payment due 7 May.
• VAT period ending 30 June → return and payment due 7 August.

Late filing and late payment attract surcharges under the VAT default surcharge regime (replaced by a points-based penalty system from January 2023).