Paying VAT by Bacs has a couple of benefits and knowing them can help you track your payments. Read this blog to know more about them!
Pay Vat by Bacs: Top 5 Benefits of Paying VAT by Bacs – Make your life of VAT tax easier to track your records of payment
Unless a company is indebted to HMRC or gets frequent payments, it is customary to file quarterly VAT returns. Both the VAT return and payment must now be submitted online, and payments must be received by HMRC seven days after the end of the month after the end of the VAT period (not only sent).
There are several ways to make your VAT payments to HMRC. In this article, we look at the benefits of using the Bacs system. Bacs refers to Bank Automated Clearing and is used by a range of businesses to pay their VAT bills.
There are several advantages to using the Bacs to pay your VAT bill, but the article looks at five advantages of using the “Bankers’ Automated Clearing Services” (Bacs).
The meaning of Bacs
Bacs is the abbreviation for ‘Bankers Automated Clearing Services.’ Bacs Payment Schemes Limited, a membership organisation of 16 of the UK’s biggest banks, operates and manages Bacs payment services.
Direct Debit payments accounted for 4.5 billion in 2020, while Direct Credit payments accounted for over 2 billion.
What is Bacs?
In the United Kingdom (UK), a Bacs payment is one of the most common bank-to-bank transfers. Direct debits, in which one party has been given authority to withdraw money from another party’s bank account.
Direct Credit is where one party deposits money in the other party’s account.
Bacs Direct Debit
A Direct Debit is an order to a bank from a client to collect payments from their account as long as the customer is informed of the payment amounts and dates in advance. A customer authorises this payment by filling out a Direct Debit Mandate form online or offline.
The organisation can receive money from you automatically once you’ve been approved (provided that they comply with the scheme rules).
The Direct Debit Guarantee ensures that clients are protected against fraudulent payments, making it the safest method of payment in the UK. Direct Debit has long been seen to be a payment method reserved for major organisations.
However, with the introduction of Direct Debit providers such as GoCardless, businesses can now take advantage of the benefits of Direct Debit.
This is achievable without having to go through the time-consuming and difficult procedure of obtaining a sponsor bank and obtaining a Service User Number.
What is bacs direct debit used for?
Direct Debit is commonly used to make recurring payments such as home bills, subscriptions, memberships, and charitable donations. It may, however, be used for a lot more, including one-time payments.
In the U.K, Direct Debit is a popular payment method as 90% of the UK population uses Direct Debit to pay at least one regular bill. Direct Debit was used to make 4.4 billion payments in 2018, with overall payments estimated at 4.4 billion.
This is why the HMRC requires businesses to make their VAT payments through Bacs. It is the most commonly used method of payment.
Is Bacs safe?
1) Bacs payment is a very safe means to collect and make payments, and it’s known all over the world for its secure electronic payment delivery: Since 1968, Bacs has been in charge of the clearing and settlement of automated payments in the United Kingdom.
2) Bacs makes use of Bacstel-IP, an SSL-encrypted system. It also necessitates the use of a secure, encrypted password, and the system is constantly monitored to ensure that data and user authorisation are legitimate.
3) Only approved organisations are permitted to collect Direct Debit payments, and the Direct Debit Guarantee protects customers from any fraudulent payments.
How long does Bacs take?
Payments made through Bacs Direct Credit and Direct Debit follow a three-day cycle and take three working days to clear.
Payments are sent to Bacs on the first day, processed by banks the next day, and concurrently deducted from the sender account and credited to the recipient account on the third day.
Payments take less than 2 hours on average with the Faster Payments Service.
Five advantages of Paying VAT by Bacs
1) Lower transaction costs compared to credit and debit cards.
2) Recurring payments are easy to set up.
3) Customers are protected by the Direct Debit Guarantee against payments made in error or fraudulently.
4) Unlike credit and debit cards, which can be stolen, lost, or expire, a Direct Debit can be used indefinitely. As a result, the number of rejected payments is reduced. Direct Debit payments have a success rate of 95-100%, compared to only 80-95% for credit cards.
5) Bacs Direct Credit is a lot easier payment method to administer than certain other payment methods, such as cheques, because most of the process, including remittance and reconciliation, is automated.
Using Bacs Direct Credit results in some immediate cost savings, and any firm with a UK bank account can use Bacs Direct Credit.
6) Another significant advantage of Bacs Direct Credit is improved cash flow. You have more control and management of money leaving your business by using it to process regular payments.
This makes precise planning and forecasting much easier.
Frequently Asked Question
Are Bacs payments expensive?
Setup expenses are £5,000 plus the cost of Bacs-approved software, which is normally £2495 or more. You’ll also be charged transaction costs, which can range from £5 to £50 plus additional bank fees.
Disadvantages of Bacs
Direct Debit payments take three working days to process, thus they are not ideal for same-day payments. While it is safe, it can be challenging to set up unless you have a UK bank account for HMRC payments.
What is CHAPS?
Faster Payments and CHAPS can also be used to send money from one bank to another. Faster Payments enables near-real-time transfers between UK bank accounts. CHAPS, on the other hand, is a same-day payment system for high-value transactions (e.g. for buying property).
There are several ways to pay your VAT bill. However, Bacs is easier and involves less effort ad your dues can be directly taken from your account by HMRC.
Furthermore, you have a greater chance of paying your VAT bill on time, which is efficient but can equally spare you additional fines from HMRC.
Bacs Direct Credit is one of the most widely used payment methods in the UK. Each year, around 2.1 billion Bacs Direct Credit payments are issued in the U.K. It’s commonly used to make recurring payments like salaries, pensions, government benefits, and tax credits.
For VAT payments professional help, check out Sterlinx Global.