Hey there! If you’re feeling a bit overwhelmed by the process of completing VAT returns in the UK, don’t worry – I’ve got you covered. In this guide, I’ll walk you through everything you need to know about how to complete VAT returns with ease. Let’s get started!
What is VAT?
Before we dive into the nitty-gritty details of how to complete VAT returns, let’s make sure we’re on the same page about what VAT actually is. VAT stands for Value Added Tax, and it’s a type of tax that is applied to the majority of goods and services in the UK. Essentially, VAT is a tax that is paid by consumers when they purchase goods or services, and it’s collected by businesses on behalf of the government.
Who Needs to Complete VAT Returns?
Not every business in the UK is required to complete VAT returns – the threshold for mandatory registration is £85,000 of taxable turnover. If your business’s taxable turnover exceeds this threshold over a 12-month period, you are required to register for VAT and submit regular VAT returns to HM Revenue & Customs (HMRC).
How Often Do I Need to Submit VAT Returns?
VAT returns in the UK are typically submitted quarterly. This means that you’ll need to complete and submit a VAT return to HMRC every three months. However, some businesses may be eligible to submit annual VAT returns instead, so it’s important to check with HMRC to determine which schedule applies to your business.
How to Register for VAT
If you’ve determined that your business needs to register for VAT, the next step is to actually complete the registration process. You can register for VAT online through the HMRC website, or you can use an agent or accountant to help you with the process. During the registration process, you’ll need to provide information about your business, such as its name, address, and taxable turnover.
Keeping Accurate Records
One of the keys to successfully complete VAT returns in the UK is keeping accurate and up-to-date records of your business’s transactions. You’ll need to track both the VAT that you have charged to your customers (output tax) and the VAT that you have paid on your business expenses (input tax). This information will be used to calculate the amount of VAT that you owe to HMRC.
Calculating VAT
Calculating VAT can be a bit tricky, especially if you’re not familiar with the process. Essentially, the amount of VAT that you owe to HMRC is the difference between the VAT that you have charged on your sales and the VAT that you have paid on your purchases. To calculate the amount of VAT that you owe, you can use the following formula:
VAT owed = Total output tax – Total input tax
Completing Your VAT Return
Step 1: Use Accounting Software
Most businesses are required to keep digital records and use compatible software to submit VAT returns under the Making Tax Digital (MTD) scheme. Ensure your accounting software is MTD-compatible.
Step 2: Access Your VAT Online Account
Log in to your HMRC VAT online account. If you haven’t already, sign up for MTD and link your accounting software to your HMRC account.
Step 3: Fill in the VAT Return Form
Using your accounting software, fill in the VAT return form. You will need to provide the following information:
- Total Sales and Outputs: Include the total value of sales and other outputs (excluding VAT).
- Output Tax Due: The amount of VAT due on your sales and other outputs.
- Purchases and Inputs: The total value of purchases and other inputs (excluding VAT).
- Input Tax Reclaimable: The amount of VAT you can reclaim on your purchases and other inputs.
- Net VAT to be Paid or Reclaimed: The difference between your output tax and input tax.
Step 4: Review and Submit
Carefully review the information on your VAT return to ensure it is accurate. Once confirmed, submit your VAT return through your accounting software. Ensure you meet the deadline for submission, which is usually one calendar month and seven days after the end of the VAT accounting period.
Step 5: Pay Any VAT Due
If your VAT return shows that you owe VAT, arrange payment to HMRC by the due date. You can pay via:
- Direct Debit
- Bank transfer (BACS/CHAPS)
- Online or telephone banking
- Debit or corporate credit card
Step 6: Keep Records
After submission, keep copies of your VAT returns and the records used to complete them for at least six years. This includes:
- VAT returns submitted
- Calculation working papers
- Sales and purchase invoices
- Bank statements
Step 7: Handle Corrections
If you discover an error in a previously submitted VAT return, correct it as soon as possible. Minor errors (below £10,000) can often be corrected on your next VAT return. Significant errors or adjustments may require a formal notification to HMRC using form VAT652.
Additional Tips:
- Stay Informed: Keep up-to-date with any changes to VAT regulations and requirements by regularly checking HMRC’s guidance.
- Seek Assistance: If you are unsure about any part of the process, consider seeking advice from a qualified accountant or VAT specialist.
By following these steps, you can ensure that your VAT returns are completed accurately and submitted on time.
Common Mistakes to Avoid
Completing VAT returns can be complex, and it’s easy to make mistakes along the way. Some common errors to watch out for include:
- Failing to keep accurate records of your transactions
- Forgetting to reclaim VAT on all eligible business expenses
- Miscalculating the amount of VAT owed to HMRC
- Missing the deadline for submitting your VAT return
Conclusion
Completing VAT returns in the UK may seem daunting at first, but with a little bit of know-how and some careful record-keeping, you’ll be a VAT pro in no time. Remember to stay organized, keep accurate records, and reach out for help when you need it. By following the steps outlined in this guide, you’ll be well on your way to mastering the art of VAT returns in the UK. Happy filing!