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How to Do a VAT Return: A Step-by-Step Guide

27th February, 2024

Completing a VAT return can be a daunting task, especially for business owners, who may find the process complex and time-consuming.

However, understanding how to complete a VAT return is key to ensuring you remain compliant with HM Revenue & Customs (HMRC) regulations.

Throughout this guide, we will simplify the VAT return process, providing a step-by-step walkthrough to make it more accessible for businesses in the UK. Read on to find out how you can complete a VAT return.

 

Contents:

 

What is a VAT Return?

Before we jump into the VAT return process, it’s important that you understand the basics of Value Added Tax.

VAT is a consumption tax applied to goods and services at each stage of the production and distribution chain. Registered businesses collect VAT on their sales and reclaim VAT on their purchases.

The VAT return is a tool for businesses to report these transactions to HMRC, settling the difference between the VAT collected and paid. Here are the key steps to take when completing a VAT return:

 

Step 1: Determine Your VAT Registration Status

The first step in the VAT return process is to ascertain your business’s VAT registration status. If your taxable turnover exceeds the VAT threshold (currently £85,000 in the UK), you are required to register for VAT with HMRC. Once registered, you must file and submit VAT returns, typically every quarter.

 

Step 2: Maintain Accurate VAT Records

Maintaining accurate and up-to-date records is fundamental to a smooth VAT return process. Keep detailed records of all sales and purchases, including invoices, receipts, and credit notes.

Make sure that you systematically organise your financial records, as this will help with the reconciliation process when completing your VAT return.

 

Step 3: Choose the Appropriate VAT Scheme

Selecting the right VAT scheme for your business is crucial. The standard VAT scheme requires businesses to account for VAT on an invoice basis, recording transactions when invoices are issued or received.

Alternatively, the cash accounting scheme allows businesses to account for VAT based on when payments are made or received, providing better cash flow management. There are other schemes, such as the Flat Rate Scheme, designed for smaller businesses.

 

Step 4: Calculate Output VAT

Output VAT refers to the VAT you charge on your sales. To calculate output VAT, multiply the total sales amount (excluding VAT) by the applicable VAT rate.

For example, if your sales total £10,000 and the standard VAT rate is 20%, your output VAT would be £2,000.

 

Step 5: Calculate Input VAT

Input VAT is the VAT you pay on your business purchases. Review your purchase invoices and calculate the input VAT by applying the relevant VAT rate to the total purchase amount.

Ensure that your invoices clearly show the VAT amount paid. Keep in mind that not all expenses are eligible for VAT reclamation.

 

Step 6: Reconcile Output and Input VAT

Reconciliation is a critical aspect of the VAT return process. Subtract the total input VAT from the total output VAT to determine the net amount payable to HMRC. If your input VAT exceeds your output VAT, you may be eligible for a VAT refund.

 

Step 7: Complete Your VAT Return Online

HMRC requires the online submission of VAT returns. Log in to your HMRC account and select the option to submit your VAT return online.

Complete the necessary fields, providing accurate information about your sales, purchases, and VAT calculations. Ensure that you submit a VAT return by the specified deadline to avoid penalties.

 

Step 8: Make Payment to HMRC

After submitting your VAT return, you’ll receive a summary detailing the amount payable to HMRC.

Settle this amount within the specified timeframe to avoid interest charges and penalties. Payment methods include direct debit, bank transfer, or credit/debit card payments.

 

Stay on Top of Your VAT Returns with Haggards Crowther

While the VAT return process may initially seem complex, breaking it down into manageable steps can relieve the stress associated with compliance.

Seeking professional advice and staying informed about any changes in VAT regulations will further enhance your ability to manage this aspect of your business effectively.

Here at Haggards Crowther, we are chartered accountants and tax advisers who offer a range of services for your business. We offer payroll management so that you can focus on your business while we take care of your payroll on your behalf.

So, if you feel you could use some extra help and support to keep on top of your payments and VAT returns, we can help. For more information on the services we offer, don’t hesitate to contact us today. We are more than happy to help.