Pictured above: Steven Simmonds

Chartered accountants Clement Keys has warned that a raft of changes to the VAT system which are all effective from 1 April 2010 - will have a major impact and businesses should make sure they understand the new rules in order to avoid penalties. 

From 1 April 2010 all businesses with a turnover of more than £100,000 will be expected to submit their VAT returns online and pay any VAT that is due electronically. For firms that pay VAT on a quarterly basis, the new system of filing will affect their June 2010 quarter end return.

"Over the past few months HM Revenue & Customs has been writing to the businesses it believes will be affected by the rule change, but if your turnover is below the £100,000 threshold and you have received a letter about electronic VAT returns, do not simply ignore it," says Director of VAT Services Steven Simmonds.

"HMRC will not issue you with a paper VAT return and you will therefore need to write in and ask for paper returns to be reinstated if you wish to continue dealing with VAT in this way." 

The changes also affect the treatment of VAT payments. With effect from 1 April 2010 HMRC will no longer regard a VAT payment as having been made on the day the return and cheque are received at the VAT Central Unit. Instead, it will only consider a payment to have been received once the cheque has cleared - and this can take an average of three days.  

"This is an important development and will affect any business which continues to receive paper VAT returns and pays its VAT bills by cheque," adds Mr Simmonds. 

"Firms are advised to make sure the cheque is received by HMRC at least three working days before the 'due date' stated on the return otherwise, they could be penalised for a late return/payment." 

On 1 April 2009 HMRC introduced a common penalty system for most of the taxes it administers, for example imposing a penalty where errors had been made on a VAT return which can be reduced if the business or taxpayer makes an unprompted disclosure or provides a reasonable excuse.

As part of its ongoing review, which is designed to persuade businesses to comply with the regulations, HMRC is updating the Penalty Regime and rolling out two new penalties. which also come into force on 1 April 2010 

A first new penalty is the "failure to notify penalty". This will impose a penalty on a business which fails to comply with a statutory obligation such as failing to notify a liability to register for VAT at the correct time or where an individual fails to submit a self assessment return or fails to advise HMRC that one needs to be submitted due to a change in circumstances.

The second new penalty is the VAT and Excise wrongdoing penalty. Following the rule changes HM Revenue & Customs can now impose a penalty on people who send out an unauthorised invoice showing or including VAT; who misuse a product so that a higher rate of excise duty is payable and who handle goods subject to unpaid excise duty.

"In some cases the new penalties replace existing ones, yet they appear to be more draconian, so our advice to businesses is to make sure their systems are robust enough to prevent anyone who acts on their behalf from committing a wrongdoing, otherwise the company could find itself being penalised as well," says Mr Simmonds.

"These VAT changes are far reaching and businesses should seek expert advice if they are concerned about the impact of the revised filing and payments system or think they may fall foul of the updated penalties regime."