Registering for VAT returns ensures you reclaim VAT paid on business purchases while also charging VAT on sales. However, what is VAT, and how is it calculated? Here is extensive information on VAT returns and many more.
What is VAT Return, and How Does it Work?
One of the first things that comes to mind when you hear the term VAT return is the tax form you fill out to show the HMRC how much VAT you owe them. Your total sales and purchases, as well as the amount of VAT you owe and the amount you can reclaim, should all be listed on the VAT return form.
VAT is levied on various goods and services, not simply business transactions. You’ll have to charge VAT on products like equipment and office space that your company rents out to others.
Once you’ve completed your VAT registration, you’ll need to charge VAT on taxable sales (output VAT). In addition, a VAT Return includes;
- The total sales and purchases for the period
- The amount of VAT you owe and the amount you can reclaim
- The amount of your VAT refund
You’ll have to pay HMRC the difference between your output and input VAT at the end of your accounting period. HMRC will refund the difference if the amount reclaimable on purchases exceeds the amount due on sales!
You won’t be able to file VAT returns if you aren’t registered for VAT.
Because of the VAT system, your company acts as a tax collector. You collect the VAT charged on your goods and services and submit it to HMRC. It determines how much VAT a business should pay or receive from HM Revenue and Customs (HMRC).
Depending on the VAT accounting scheme you use, there are some exceptions to this rule. However, the laws and regulations governing how to file a VAT return can be complicated, and many firms, particularly small businesses unfamiliar with VAT returns, are unsure where to begin.
So let’s see how you can file for vat return.
How To File Your Vat Return
A VAT number and a VAT online account are required to begin the process of completing your VAT return. You can then use HMRC’s free online service or commercial accounting software to file your VAT Return.
Most accounting software allows you to submit your VAT Return directly to HMRC. This eliminates the need to enter your data into HMRC’s website manually. HMRC has a list of software you can use to submit your VAT Return.
You should be aware that there are three different VAT rates: standard (20%), reduced (5%), and zero (0 percent ). Again, you must be careful while filling these forms as errors carry serious consequences, including penalties of up to 15% for unreported errors.
With HMRC’s free online service, you can quickly submit your VAT return, as it is a straightforward process. Alternatively, you can file your VAT return using your own commercial accounting software, such as QuickBooks.
To assist you with your VAT return or tax, look for an online accountant or a solicitor. It’s important to note that if you’ve signed up for ‘Making Tax Digital for VAT, you won’t be able to send your VAT return through your online account. You’ll need to use accounting software that works with the program instead.
How To Calculate Vat Return
You’ll need a list of all your goods and services to avoid making mistakes when computing your VAT. Then you must designate the amount you are charging per item on the list.
Many goods and services have a reduced VAT rate, although the usual VAT rate is 20%. The VAT return subtracts the amount of VAT you can reclaim on purchases from the amount of VAT you owe on sales.
The amount you pay is the outcome of this calculation. You’ll obtain a VAT refund if the amount you claim is greater than the amount you owe.
Know The Flat Rate Scheme VAT Option.
The Value Added Tax (VAT) flat rate scheme is a method of paying VAT in which a company pays a set percentage of its annual revenue. The amount you pay to HMRC each quarter will be different if you do not use the Flat Rate Scheme.
Its goal is to ensure that businesses pay roughly the same amount of VAT as other VAT schemes without having to submit as much paperwork.
When you use the Flat Rate Scheme, you continue to charge VAT to your customers as usual, but instead, pay HMRC a proportion of your entire sales as VAT.
Some small businesses may benefit from the Flat Rate Scheme. It allocates a lower VAT rate to your company, such as 10%, which you must pay VAT to HMRC.
Is it Necessary to File a VAT Return Regularly?
You will receive a notification from HMRC’s VAT online tool or email when your VAT returns are due. Payment must be made within a specific timeframe. If you don’t get much notice, always check your VAT online account to determine when you are due and when the payment needs to be cleared.
A VAT form must be filed after each accounting period slated every three months. Meaning you’ll have to complete four VAT returns per year, and each VAT return must include the necessary start and end dates.
What is the Purpose of VAT Returns?
A VAT Return has only one purpose: compute how much VAT you owe HMRC or how much they owe you for a three-month accounting period. These figures could be what you owe for sales or what you can reclaim for business purchases.
Your sales and purchases, as well as the VAT associated with them, are summarized in the VAT return. The VAT return includes your total sales as well as output tax, which is the VAT you charged on sales and must pay to HMRC. Most goods and services purchased from other businesses are eligible for VAT reimbursement.
Bottom-Line
VAT (Value Added Tax) is a tax levied on the sale of goods and services. VAT is an accounting reality for small businesses requiring a meticulous approach to record-keeping and precise calculations when determining how much VAT you should charge and pay to HMRC. Theoretically, the mechanism appears to be simple.
