VAT man deters cheque payments

HM Revenue & Customs has announced that cheques will need to clear by the normal due date for payment to be deemed on time and avoid incurring a penalty.

The policy, effective from April 1, 2010, effectively means that all cheques payments posted to HMRC will be treated as received on the date that the money goes through.

"If you are posting a cheque to HMRC, you should allow enough time for the post to arrive and for the cheque to clear", said Kingston Smith, the chartered accountants.

"With businesses now relying on HMRC's efficiency to bank their cheques promptly, electronic payment methods are likely to look much more attractive."

Adrian Houstoun, VAT partner at the firm, said most businesses have an extra seven days after the payment due date to pay their VAT if they settle up electronically.

In contrast, those paying HMRC by cheque will have to submit it a week before the due date, if they wish to avoid a penalty and potential interest.

Also from April 1st, businesses with an annual turnover of £100,000, or over, must file and pay all future VAT returns online, even if their turnover drops below £100,000.

This requirement, applying to turnover without VAT added, also applies to business of all sizes that register for VAT on or after the date, Kingston Smith said.

However, people who register for VAT before the first day of next month will not have to submit their return and pay online if their turnover stays below £100,000.

"Most of the traders paying by cheque after April 1st will be small in size and number," Houstoun added, "[so] this new measure is likely to go unchallenged and HMRC will get its wish, i.e. payment by cheque will become a rarity."