What is a VAT return?
A VAT return is a tax form you file to show how much VAT you are due to pay HMRC. Your VAT return should contain your total sales and purchases for the period, the amount of VAT you owe and the amount you can reclaim, and what your VAT refund is.
You’ll have to submit a VAT refund even if you don’t have any VAT to pay or reclaim.
VAT filing dates
You should file a VAT form at the end of each accounting period, which is every 3 months. As such, you’ll file four VAT returns each year. You need to include the relevant start and end dates on each VAT return.
Your VAT online account will be able to tell you when your VAT returns are due, and when the payment must clear HMRC’s account. These two deadlines are usually the same, so you need to factor in the time needed for your payment to be processed.
How to calculate VAT return
In a nutshell: the VAT return calculates the amount of VAT due on sales (called your output VAT), minus the amount of VAT you can reclaim on purchases (called your input VAT).
The resulting figure is the amount you pay. If the amount you reclaim is higher than the amount due, then you’ll get a VAT refund.
How to do VAT returns
The rules and regulations surrounding VAT returns can be quite complicated. For a full overview, you can read the government’s VAT Guide.
The essentials that you need to be aware about are:
- There are different rates of VAT, including standard (20%), reduced (5%) and zero rate (0%)
- You can’t always reclaim VAT on purchases, for example for client entertaining, car purchase, or non-business use
- There are severe penalties for errors, including penalties of 15% for undeclared errors.
Below, you can see how VAT returns are prepared in a couple of clicks with KashFlow’s Accounting software.
What is the Flat Rate scheme?
With the Flat Rate scheme, you pay a fixed rate of VAT and keep the difference between what you charge your customers and pay to HMRC. You can apply for this scheme if your VAT turnover is £150,000 or less, excluding VAT.
To see how much your VAT Flat Rate would be on this page. This scheme can bring cash advantages to small businesses, but you can’t reclaim VAT on purchases unless they are capital assets over £2,000.
What is Cash Accounting?
With the Cash Accounting scheme, you’ll pay the VAT collected on payments received from customers instead of the amount of VAT you’ve invoiced for.
You’re eligible for the Cash Accounting scheme if your VAT turnover is less than £1.35 million per year.
The easiest way to file your paperwork is to submit VAT return online. Login pages can be found here.
Before you log in, you’ll need to make sure you have a VAT number and a Government Gateway account. You’ll get those when you register as self-employed.
Running a VAT return in KashFlow
To submit your VAT return, simply go to “reports”, “general reports”, then select “VAT management and reports”.
If this is the first time you have run this report, then you’ll be taken to the VAT settings page. Here, you’ll have the option to choose whether you are on the Flat Rate Scheme or Cash Accounting and also set your VAT period. Click update once you have finished.
If you click “new VAT report” and provide the relevant dates, we’ll show you all the necessary figures for submitting your VAT return. These can be cross checked and analysed in full detail by pressing “download calculations”.
You will also notice towards the top of the VAT report you can change the date range for this report as well as print the page.
Once you have checked and are happy with your figures, you will need to click “submit VAT return” at the bottom of the page.
The next screen will ask you to confirm that you are submitting your VAT return on paper or, if you’ve registered for online filing, that you want us to submit it to HMRC for you.
Once you click “confirm” this will make all the necessary journal entries in your KashFlow account to reflect your VAT return.
MTD and digital VAT returns
From April 2019, businesses registered for VAT above the threshold of £85,000 will have to keep digital records and submit digital VAT returns to HMRC.
As VAT Returns need to be submitted digitally, businesses will need a software solution that accommodates HMRC’s APIs.
To make sure you’re ready for Making Tax Digital, your software needs to be able to:
- Keep digital records
- Digitally preserve these records
- Create a VAT return from these digital records
- Provide VAT data to HMRC on a voluntary basis
- Receive information (“nudges”) from HMRC via API (application programme interfaces) platforms.
To help businesses prepare to Making Tax Digital, we’ve created a hub of free resources. Including videos, blogs and free guides; it covers everything from Real Time Tax to submitting a VAT return under the new scheme.