Value Added Tax (VAT) is part of the UK tax system, and companies with a VAT threshold are governed by HMRC regulations for submitting VAT returns. Understanding how VAT processing is done keeps companies penalty-free and in good cash flow condition. Newbie business or simply want to overhaul your VAT return process, this guide has it all on VAT returns in the UK.
- What is a VAT Return?
A VAT return is a form VAT-registered businesses must submit to HMRC, usually quarterly, detailing the VAT received on customers and VAT incurred on expenses. The difference between VAT received on customers and VAT incurred on expenses is what requires a business to pay HMRC or claim back VAT.
- Who is required to File VAT Returns?
Businesses must register for VAT if their taxable turnover exceeds the VAT registration threshold, which is £85,000 (2024). Small businesses under this threshold may opt to register for VAT voluntarily if they want to reclaim VAT on purchases. Registered businesses already need to submit VAT returns if they owe VAT or are eligible for a repayment of VAT.
- UK VAT registration
If you can register your business for VAT, you can register on the HMRC website. You will be issued with a VAT number, which you must include on VAT returns and invoices. You will be enrolled for Making Tax Digital (MTD) and your VAT returns must be completed and submitted using eligible accounting software.
- Filling in a VAT Return
The basic VAT return consists of the following principal sections:
Total purchases and sales – Total goods and services bought and sold during the VAT period.
VAT on purchases (Input VAT) – The VAT on business purchases.
VAT on sales (Output VAT) – The VAT paid on customers on sales.
Net VAT to pay or reclaim – If you owe more output VAT than input VAT, you will have to pay HMRC the excess. If you owe less input VAT, you can reclaim the excess.
VAT returns will have to be submitted online in accordance with Making Tax Digital (MTD) regulations.
- VAT Schemes Available for Businesses
There are several VAT schemes that try to simplify it so that it is easier for VAT to be calculated and paid by businesses:
- Standard VAT Accounting Scheme
This is the default scheme where businesses charge VAT on sales and reclaim VAT on purchases for each VAT return period.
- Flat Rate VAT Scheme
This makes VAT accounting for small businesses on a proportionate percentage of gross turnover basis easier. Only purchases worth over £2,000 are the only purchases that can be reclaimed by companies under VAT.
- Cash Accounting Scheme
VAT is incurred only when customers pay the business and not when it issues invoices. This is convenient for businesses in cash flows.
- Annual Accounting Scheme
There is only one VAT return per year by the businesses, and advance payment of their VAT charge. This can help support businesses to budget and restrict administrative effort.
- VAT due dates and charges
The VAT returns must be filed quarterly with payment one month and seven days after the end of the VAT period. Defaulting may attract charges:
Late filing – HMRC VAT penalty points regime penalties, whereby repeat late filing incurs money penalties.
Late payment – Interest and surcharge can be imposed.
Incorrect returns – Erroneous input can trigger HMRC investigation and subsequent penalties.
- Filing VAT Returns
With the advent of Making Tax Digital (MTD) becoming mandatory, businesses now have to file VAT returns via HMRC-approved software such as:
QuickBooks
Xero
Sage
FreeAgent
These computer applications help in VAT calculation automation and MTD compliance.
- VAT Zero-Rated or Exemptions
Some goods and services are zero-rated (0%) or exempt from VAT, such as:
Financial services (exempt)
Charity donations (exempt)
Children's clothing and food (zero-rated)
Books and newspapers (zero-rated)
It is important to know these categories for business companies to tax accordingly.
- Most Often Made VAT Return Mistakes
Missing deadlines – Penalties for late submission.
Incorrect calculation of VAT – Redo output and input VAT figures.
Not keeping the proper records – VAT-registered persons are required to keep invoices, receipts, and VAT records for at least six years.
Not using MTD-compatible software – MTD no longer supports manual filing of VAT returns.
- 10 Effective Tips for VAT Return Management
Use VAT software – Accounting software ensures accuracy and compliance.
Reminder of deadlines – Avoid missing deadlines by reminding you.
Check VAT records periodically – Keep receipts and invoices in order.
Seek guidance from a VAT expert – Business owners can avoid expensive errors with professional advice.
Conclusion
VAT returns are the center of UK VAT registered business operation. Proper registration, return submission, and VAT payment means businesses are doing it right under HMRC regulations and avoiding penalties. Making Tax Digital (MTD) has so that now businesses are mandated to employ compatible software upon making VAT applications, thus automation is now the center of North East VAT Returns.
By staying up-to-date, keeping proper records, and seeking professionals wherever necessary, firms can handle VAT returns well and focus on development. Whether a new firm or an old-established one, VAT handling must be well managed to become financially stable and prosperous.
