How to submit a VAT return

How to submit a VAT return

Once registered for Value Added Tax, business owners need to understand how to submit a VAT return.

VAT is a complex process and can take up a lot of time, which is why many businesses choose to use an accountant.

Businesses only become liable for VAT when they have a turnover in excess of £85,000. But you can opt to register for it if you are below that threshold. It really depends on a number of factors, and these have been included in an earlier blog.

VAT receipts last year amounted to £150billion – an increase of 55% compared to the previous financial yea. So that means a lot of businesses spend time on submitting returns. But how do you submit a VAT Return?

How to submit a VAT Return

To submit your return you will need a VAT number as well as a VAT online account. You can only file returns using Making Tax Digital accounting software, such as Xero, or through an agent, such as an accountant or tax adviser.

VAT schemes

There are generally three VAT schemes which businesses can choose to use depending on their circumstances. It is essential to choose the right scheme for your cash flow.

  • Standard VAT accounting: This is also known as the Accrual Scheme. This scheme records all the VAT based on the invoice for sale or when payment is used. Returns submitted in this scheme are usually every quarter. It must show the input and output tax for the past quarter.
  • Flat rate VAT: The flat rate scheme gives incentives for simplifying taxes. This allows businesses to charge 20% VAT on sales but you pay HMRC at a lower rate. The percentage is fixed at a flat rate and businesses keep the difference between the amount of VAT paid to HMRC and the amount of VAT paid by customers. Beware, not all businesses can use the flat rate scheme.
  • Cash accounting: Businesses with more than £1.35million in revenue subject to VAT cannot use this scheme. It allows businesses to defer paying VAT to HMRC until a customer pays invoices. It is useful for customers who need to extend credit or suffer a lot of bad debts. For more details, visit the HMRC website.

When are returns due?

Most businesses need to submit VAT returns every three months. The actual dates depend on when you registered. Repayment traders can request monthly returns.

You usually have one month and seven days from the end of your VAT return to submit your return and pay what you owe. Your online account will give you your dates.

What do I have to do?

There are three steps to submitting your return each quarter.

Gather your records

To submit your return you need to have the following details to hand:

  • Total sales
  • Total purchase
  • Output VAT (what you collected on sales)
  • Input VAT (what you can claim back)

Use software to submit

Businesses registered for Value Added Tax must use software, such as Xero, to submit their return. You can use other software, but make sure it is compatible with Making Tax Digital. From April 2022, registered businesses both above and below the £85,000 threshold must use this method to submit their returns.

Pay your bill

If you sell more than you buy then you will end up with a VAT bill. You have one month and seven days to pay this. This can be done manually or via direct debit. Whichever method you use, make sure the bill is paid on time to avoid penalties.

Repayment return: If you have paid more in VAT than you have collected (such as times when you have invested in new equipment) you will not have a bill. Instead, HMRC will refund you. Should this happen regularly, you may prefer to opt for monthly returns.

Get help to submit a VAT return

VAT returns take time and are complicated. It’s always best to speak to a professional before you decide which scheme to use and whether to use monthly or quarterly returns. For help, you can speak to our team today.