Easing cashflow with monthly VAT returns

May 31st 2022

Is it possible to move to monthly VAT returns to get the cash in quicker? VAT Technician Elaine Wight explains.

If most of your sales are zero-rated, then it’s likely that you usually get a VAT repayment every quarter. But having to wait for that VAT refund after the end of a quarter can cause a strain on cash flow. So, we ask if it is possible for you to submit monthly VAT returns?

The VAT legislation states that a standard VAT return period is three months, this has always been the case since UK VAT was introduced. However, HMRC has the power to allow monthly returns and to make monthly returns compulsory if HMRC is concerned that VAT may not be paid over.

The good news is that HMRC’s policy has always been to allow a business that regularly submits repayment VAT returns to file monthly returns. Repayments occur when input VAT exceeds output VAT, for instance a construction company building new houses declares zero rated sales, but can claim the input VAT on all goods used in the build.

Please note, HMRC will not approve monthly VAT returns on the basis that your company will have a couple of repayment periods in a row due to spending a significant amount on new plant and machinery over two quarters.

If you get regular VAT repayments and want to obtain your refunds more quickly, then you need to apply to HMRC to submit monthly returns instead.

If your annual VAT liability is more than £2.3m, then HMRC requires you to make a monthly payment on account (POA). The POA is based on the prior year’s liability so if your VAT liability has gone down, you can smooth your cash flow by asking to switch to monthly returns rather than quarterly ones – that way you will only pay over the VAT you owe rather than a (higher) estimate. If your VAT liability is under £2.3m per year, then HMRC’s guidance states that you can’t ask to switch.

Applying to move to monthly returns
There are two ways that you can apply to HMRC to change to monthly VAT returns.

– HMRC VAT online account
You can log in to your HMRC VAT online account and update the details in the “change registration details” section.

– VAT Form 484
The other way is to complete VAT 484, you need to complete section 3 of the form and tick the “I wish to apply for monthly returns” box.

It’s likely to be much quicker to apply to change to monthly returns online as HMRC’s postal backlog is causing delays in the processing of all postal applications and requests.

Providing you receive regular repayments because you make zero or reduced rate sales, then an application to move to monthly returns should be accepted by HMRC.