Welcome to the fascinating world of UK corporate. Today, we will discuss HMRC VAT returns, a crucial aspect of managing your business finances in Great Britain. Understanding and navigating VAT returns is essential whether you’re a small startup or an established enterprise.
VAT, or Value Added Tax, is a financial intricacy significantly impacting UK businesses. With various thresholds, deadlines, and complex rules, it’s no wonder many are overwhelmed by submitting a VAT return to HMRC.
But fear not! This guide will simplify the complexities and provide clear, concise steps to ace your VAT return in the UK.
Let’s break down the entire VAT return process, making it easily manageable.
What is a VAT Return?
Let’s start with the very basics! Tell us, what do you understand by the term “VAT return?”
A VAT return is a crucial financial document, a tax detail that businesses in the UK submit to HM Revenue and Customs (HMRC). Businesses calculate the differences between output and input taxes, representing the VAT they owe to HMRC or, in some cases, the refund they’re eligible to receive. The VAT return ensures businesses meet their tax obligations accurately, facilitating the smooth flow of VAT in the economy.
Understanding this process is fundamental to maintaining your financial records accurately and staying compliant with HMRC regulations. Every VAT-registered business—whether voluntarily or compulsorily registered—in the UK must submit a VAT return, whether they have to pay or reclaim VAT. You don’t have to submit a VAT return if your business isn’t registered for VAT.
Here’s a thing to remember: To submit a VAT return, you should go through VAT registration first.
Frequency for Submitting HMRC VAT Return
The turnover of your business determines how frequently you should submit your HMRC VAT return. Most businesses are required to submit VAT returns quarterly. This means businesses file four VAT returns annually, every three months, and one at the end of each fiscal year. This is also called the accounting period.
Based on when your business was registered for VAT and whether you requested a particular gap, you will know the precise dates that define each 3-month period.
Knowing your specific VAT return period is essential to ensure timely and accurate submissions. Keeping track of these dates is crucial for avoiding penalties and maintaining a smooth VAT compliance process.
However, some businesses may be eligible for annual or monthly filing, depending on various factors, including their VAT scheme, turnover, and compliance history.
Basic Rules of Filing HMRC VAT Returns for VAT Accounting Schemes
Understanding the rules specific to VAT accounting schemes is essential for accurate filings:
Choosing the Right Scheme:
Select the appropriate VAT accounting scheme for your business, such as the flat rate or annual accounting scheme. Each scheme has distinct rules tailored to different business needs.
Accurate Record-Keeping:
Maintain meticulous records of sales and purchases based on your chosen scheme’s guidelines. Accurate data is crucial for precise VAT calculations.
Timely Filing and Payments:
Adhere to your VAT accounting scheme’s specific filing and payment deadlines. Penalties and interest may be assessed for late submissions.
Understanding Scheme-Specific Regulations:
Familiarize yourself with the unique regulations associated with your chosen scheme, including applicable thresholds, rates, and eligibility criteria.
Consultation and Compliance:
Seek guidance from HMRC or a qualified tax professional to ensure your business complies with the rules of your selected VAT accounting scheme. Stay updated on any changes in regulations that might affect your filings.
By adhering to these basic rules and staying informed about the specific guidelines of your chosen VAT accounting scheme, you can streamline your VAT return process and maintain compliance with HMRC regulations.
UK VAT Return Boxes: Inclusion in a VAT Return
As mentioned earlier, when utilizing an online VAT account for filing VAT returns in the UK, it is necessary to complete a form that comprises various boxes. Each box corresponds to specific VAT transactions, where you report your sales, purchases, and the corresponding VAT.
Understanding what each box entails is crucial for ensuring accurate submissions. Let’s break down the key components to include in the UK VAT return boxes:
Box 1: VAT Due on Sales (Output Tax)
Include the total VAT charged on your sales during the period.
Box 4: VAT Due on Purchases (Input Tax)
Record the total VAT that can be reclaimed on your purchases.
Box 6: Total Sales, Excluding VAT
Enter the total value of your sales, excluding VAT.
Box 7: Total Purchases, Excluding VAT
Include the total value of your purchases, excluding VAT.
Box 8: Total Value of Acquisitions from Other EU Countries
If applicable, include the total value of goods acquired from other EU countries.
Box 9: Total Value of Goods Supplied to Other EU Countries:
If applicable, enter the total value of goods you’ve supplied to other EU countries.
Understanding these boxes ensures accurate reporting and compliance with HMRC regulations.
Things to Double-check Before Submitting UK VAT Return Before Due Dates
Ensuring the accuracy of your UK VAT return before the due dates is crucial to avoid penalties and maintain compliance with HM Revenue and Customs (HMRC) regulations. Here’s a checklist of things to double-check before submitting your UK VAT return:
Transaction Records
Verify that all your financial records, including invoices, receipts, and expense documents, are complete, accurate, and up-to-date.
Reconciliation
Reconcile your financial records to ensure that your income, expenses, and VAT calculations align with your accounting system.
VAT Calculation
Double-check your VAT calculations to ensure you have applied the correct VAT rates (standard, reduced, or zero-rated) to your transactions.
Input and Output Tax
Review your input and output tax calculations to ensure that you have accounted for all relevant VAT on purchases and sales.
Taxable Period
Confirm that you’re filing for the correct taxable period, whether monthly, quarterly, or annually.
Digital Record-Keeping
Ensure you have maintained your financial records digitally using compatible accounting software, as required under Making Tax Digital (MTD) rules.
MTD-Compatibility
If you’re using MTD-compatible software, verify it’s up-to-date and functioning correctly. Test your software’s VAT return submission feature.
Digital Links
If you’re transferring data between different software programs, use digital links to prevent manual errors during data transfer.
Zero Amounts
Where applicable, ensure you have entered ‘0.00’ in any boxes with no VAT liability or amounts.
Box Totals
Confirm that the totals in each VAT return box match your calculations and are consistent with your digital records.
Credit Notes and Adjustments
Check that you’ve correctly accounted for credit notes, adjustments, or any errors from previous returns.
Bank Details
Ensure that you have provided your bank with HMRC’s VAT account details and used your VAT-registered name and VAT registration number as the pay reference without any gaps.
Submission Method
Choose the appropriate method for submitting your VAT return (online or on paper) based on your eligibility and preferences.
Submission Deadline
Verify the submission deadline for your VAT return and ensure that you submit it before the due date to avoid penalties.
Attachments
Ensure that, unless HMRC specifically requests it, you have not attached any documents to your VAT return.
Review and Confirm
Before clicking ‘submit,’ thoroughly review your VAT return to ensure that all information is accurate. Once submitted, you cannot amend the return.
By following this checklist, you can minimize errors and ensure that your VAT return is complete and accurate, helping you meet your tax obligations and avoid penalties.
Steps to File a VAT Return Form
With accurate records as your foundation and user-friendly accounting software as your tool, filling out your VAT return form becomes a solvable puzzle. To file a VAT return form in the UK, you can follow the simple steps mentioned below:
1. Determine Your VAT Return Period
VAT returns are typically filed quarterly. However, the frequency of your VAT return submissions depends on your business and its turnover. Depending on various factors, some businesses may be eligible for annual or monthly filing, including their VAT scheme, turnover, and compliance history.
To understand your VAT return period, consider your business’s registration date, turnover, and any specific request you’ve made for a different filing frequency.
2. Maintain Accurate Records
Start by keeping accurate records of your sales and purchases. Having organized invoices, receipts, and relevant documents forms the basis of your VAT return accuracy. This is the key to a triumphant VAT return.
3. Choose the Suitable Fit
Depending on certain conditions, businesses have several options for filing their VAT returns. You must choose the right fit for your needs before moving on to the next steps. Such as:
- Using MTD-Approved Accounting Software: Making Tax Digital (MTD) is a government initiative that requires businesses to keep digital records and use MTD-compatible software to submit VAT returns online for most VAT-registered businesses. This is the recommended method by HMRC, ensuring accuracy and efficiency in the process.
You must choose a software provider compatible with Making Tax Digital (MTD) for VAT. MTD-compatible software automates the process and reduces the risk of errors. This is most suitable for businesses with a taxable turnover of over £90,000.
This modern approach reduces the complexities associated with VAT returns, making them accessible and manageable for businesses of all sizes. - Using Your VAT Online Account: HMRC also offers the option to use your VAT online account to file your return electronically. You can access your account through the HMRC portal, where you’ll find the VAT online services.
This method suits businesses that may not use accounting software or prefer to submit directly through the HMRC website, especially voluntary-registered businesses for VAT in the UK. - Appointing an Agent or Accountant: Alternatively, you can appoint a qualified agent or accountant to file your VAT return for your business. Many businesses opt for this route to save time and ensure accuracy, especially if they have complex financial records.
If you choose this option, ensure your agent is registered with HMRC and has the necessary permissions.
4. Calculate Your VAT Liability
Calculate your VAT liability by determining your total output tax (the VAT you’ve collected on sales) and total input tax (the VAT you’ve paid on purchases). The difference between these two amounts is the net VAT amount you owe to HMRC or are eligible to reclaim. Confirm that all figures are correct before submission.
In this step, if you’re using HMRC-approved software:
Input your total sales, excluding VAT, and total purchases, excluding VAT, for the period. The software will calculate your output tax and input tax.
5. Filling Out Your VAT Return Form
In this step, if you are using an online VAT account,
Log in to your HMRC online account and access the VAT online services. Follow the prompts to fill out the VAT return form. This form includes boxes to report different sales, purchases, and VAT amounts. Ensure that you enter the correct figures in the appropriate boxes.
6. Submit Your VAT Return Online
HMRC mandates online submission for VAT returns. Once you’ve completed the VAT return form, submit it electronically through the HMRC online portal or software.
Double-check all the information for accuracy before confirming the submission. Even
If you appoint an accountant or agent for your VAT return,
Provide them with the necessary data for filing your VAT return.
7. Make Timely Payments
If your VAT return indicates that you owe VAT to HMRC, making the payment promptly is essential. HMRC provides various payment methods, including online banking and direct debit. To avoid penalties and interest charges, it is essential to make payments on time.
8. Retain Records
After submitting your VAT return, keep copies of the filed returns and all supporting documents for at least six years. HMRC may request these records for inspection or auditing purposes.
Following these steps and staying organized, you can file your UK VAT return accurately, ensuring compliance with HMRC regulations. Understanding the process is vital to a smooth VAT filing experience and contributes to your business’s financial stability.
Can I Submit My VAT Return on Paper?
HMRC strongly encourages digital submissions. You can only submit your VAT return on paper under specific circumstances, including:
- If your business has been granted an exemption from MTD, or Making Tax Digital for VAT.
- If there are specific reasons you can not file online.
- Suppose you object to using computers on religious grounds or cannot use computers due to your age, disability, or lack of internet access. In that case, you are eligible to submit a paper VAT return.
- Suppose your business is subject to an insolvency procedure, and you have either a company or an individual voluntary arrangement. In that case, you can submit your return on paper or online.
In these cases, you can contact HM Revenue and Customs (HMRC) to find out how to submit a paper return. HMRC can assist you in the process and guide you in understanding VAT.
Important Note: If you submit a paper VAT return without eligibility, HMRC can charge you a penalty of up to £400. Therefore, it’s crucial to ensure that you meet the specified criteria before opting for paper filing.
Paying HMRC VAT Return Online
Filing your VAT return online offers convenience and efficiency, as does paying your VAT bill to HMRC. After submitting your VAT return through the Making Tax Digital (MTD) system or any other online method, settling your VAT liability promptly is essential.
When making your VAT payment to HMRC, you must ensure a timely payment. This helps reduce the risk of errors. Here’s how you can pay your VAT returns online:
- Log In to Your HMRC Online Account: Access your HMRC online account, where you submitted your VAT return. Enter your login information to log in safely.
- Select “Pay Now”: Navigate to the “Pay Now” or similar option, typically found in your VAT online account.
- Choose Your Payment method: HMRC offers several payment options, including:
- Direct Debit: One of the simplest methods is to set up a direct debit payment. You can authorize HMRC to collect the VAT due directly from your bank account on the specified date. This automated process ensures timely payments, minimizing the risk of missed deadlines.
- Debit or Credit Card: HMRC’s website provides an online service where you can pay your VAT bill using a debit or credit card. This method suits businesses preferring card payments, offering a secure and straightforward transaction process.
- Bank Transfer: Pay your VAT bill directly through your bank using the necessary details HMRC provides.
- Making Tax Digital (MTD): If your business is registered under Making Tax Digital for VAT, you can use MTD-compatible accounting software to submit your VAT return and make payments electronically. MTD streamlines the entire process, ensuring seamless VAT compliance.
- Direct Debit: One of the simplest methods is to set up a direct debit payment. You can authorize HMRC to collect the VAT due directly from your bank account on the specified date. This automated process ensures timely payments, minimizing the risk of missed deadlines.
- Confirm Your Payment: Follow the on-screen instructions to confirm your payment. Double-check all the information, including the payment amount and method you selected.
- Receive Confirmation: Once your payment is processed, you’ll receive a confirmation from HMRC. This confirmation is proof that you paid.
- Set Up a Payment Reminder: To ensure timely payments in the future, consider setting up reminders or alerts to avoid missing payment deadlines.
UK VAT Return Deadline and Penalties
Timely payment of your VAT bill is crucial to avoid penalties and interest charges. The payment deadline typically aligns with the VAT return submission date, so note this date to stay compliant.
Your particular VAT accounting period determines the UK’s VAT return deadlines. Here’s what you need to know about VAT return deadlines and the associated penalties:
Quarterly Deadlines
For most businesses filing quarterly VAT returns, the deadline is usually one calendar month and seven days after the end of the VAT period. Knowing your specific VAT period dates is essential to meet the deadline accurately.
Annual Deadlines
If your business is eligible for annual VAT returns, the deadline is generally two months after the end of the accounting year.
Monthly Deadlines
Some businesses may have a monthly VAT return requirement, and the deadline for monthly submissions is typically one month and seven days after the end of each month.
Penalties for Late Submissions
It’s crucial to file your VAT return on time to avoid penalties. Penalties and interest charges can happen for late submissions. The penalties are based on how often you’ve been late in the previous 12 months.
- First Late Submission: If it’s your first late submission within a 12-month period, there is no penalty. HMRC will send you a Late Filing Penalty (LFP) warning letter.
- Second Late Submission: For the second late submission within a 12-month period, you’ll be fined a flat-rate LFP of £200.
- Third and Subsequent Late Submissions: If you submit your VAT return late for the third time or more within a 12-month period, the LFP, or Late Filing Penalty, increases. The penalty is based on your turnover.
If you persistently fail to file your VAT returns on time, HMRC may impose higher penalties, up to 15% of the VAT due. You can appeal the penalty if you have a reasonable excuse for missing the deadline, such as a severe illness or a major technical issue. HMRC will consider the circumstances and decide whether to waive the penalty.
You must know your specific VAT return period and submit your returns on time to avoid these penalties in the UK. Late filings not only result in financial penalties but can also disrupt your business operations and lead to further scrutiny by HMRC.
How Do I Sign Up to Make My HMRC VAT Tax Digital?
VAT-registered businesses are mandated to submit their VAT returns digitally through MTD-compatible software. This electronic submission of VAT returns aims to reduce errors and streamline the reporting process.
To sign up to make your HMRC VAT tax digital, you will need to:
- Go to the HMRC website and create a Government Gateway account.
- Once you have a Government Gateway account, you can sign up for Making Tax Digital (MTD) for VAT.
- You must provide your VAT registration number and business contact details to sign up for MTD for VAT.
- You have to choose a software provider as well. HMRC’s website contains a list of approved software providers.
- Once you have chosen a software provider, you must link your Government Gateway account to your software provider account.
- Once your accounts are linked, you can submit your VAT returns digitally.
VAT Return Refunds
You may be eligible for a VAT refund if your input VAT (VAT on purchases) exceeds your output VAT (VAT on sales) during a specific VAT return period. This situation commonly arises for businesses that make significant investments or have a high volume of zero-rated supplies.
Repayments are typically processed within 30 days after HM Revenue and Customs (HMRC) receives your VAT return. This efficient turnaround time ensures businesses promptly receive their refunds.
If HMRC has your bank account details, the refund will be transferred directly to your bank account. This method offers a secure and expedited way to receive your funds. Alternatively, if HMRC doesn’t have your bank details, they will send you a check, a ‘payable order.’
How Can I Check If My VAT Return Has Been Submitted?
To check if a VAT return has been submitted in the UK, you can follow these steps:
- Visit the HMRC website and log in to your online account.
Once logged in, go to the section that provides VAT services or options related to VAT returns. - Look for an option to view submitted VAT returns. This section will typically display the history of your VAT returns, including their submission status and details.
- In this section, you’ll see whether your VAT return has been successfully submitted, along with the submission date.
- Using your HMRC online account is a secure and efficient way to check the status of your VAT return submissions.
Contact HMRC for assistance if you’re uncertain about the UK VAT return status or encounter any issues.
FAQs
Q1: Who pays VAT in the United Kingdom?
Answer: In the UK, consumers typically pay value-added tax (VAT) when they make purchases of goods or services. Businesses, both large and small, act as intermediaries in the collection and payment of VAT to HM Revenue and Customs (HMRC).
Q2: Can I pay my VAT annually?
Answer: You can pay your VAT yearly in the UK, but only if you qualify for the AAS or Annual Accounting Scheme.
Q3: Can I submit a VAT return early?
Answer: Yes, businesses in the UK can submit their VAT returns early if they wish. No restrictions are preventing early submissions.
Q4: Is it challenging to complete a UK VAT Return Online?
Answer: Completing an online VAT return is not difficult, but it can be time-consuming. If you are unsure how to complete your VAT return, it is always best to seek professional help.
Q5: Does HMRC automatically refund VAT?
Answer: Yes, HMRC automatically refunds VAT to businesses that have overpaid. This is typically done within 30 days of receiving the VAT return, but it can take longer if the return is complex or if HMRC needs to investigate the claim.
Bottom Line
Navigating the HMRC VAT returns is crucial for businesses in the UK. By understanding the process, deadlines, and essential terms, you can ensure compliance, avoid penalties, and maintain smooth financial operations.
Remember, accurate record-keeping, timely submissions, and adherence to VAT regulations are critical to a successful VAT journey. Stay informed, keep your records in order, and confidently manage your VAT returns to pave the way for a financially secure and compliant business.
