VAT returns

What is VAT returns

A VAT return is a form that VAT-registered businesses in the UK must submit to HM Revenue and Customs (HMRC) at regular intervals (usually every three months).

Its purpose is to:  

·      Report the amount of Value Added Tax (VAT) the business has charged on its sales (output tax).  

·      Report the amount of VAT the business has paid on its purchases (input tax) that it is eligible to reclaim.  

·      Calculate the net VAT liability – the difference between the output tax and the recoverable input tax.  

Key aspects of VAT returns

Frequency

Most businesses submit VAT returns quarterly, with specific accounting periods and deadlines determined by HMRC when the business registers for VAT. However, some businesses may file monthly or annually under specific schemes.  

Making Tax Digital (MTD)

Since April 2022, all VAT-registered businesses must submit their VAT returns online using MTD-compatible software. Manual submissions are no longer permitted for most businesses.  

Deadlines

The deadline for submitting a VAT return online and paying any VAT due is usually one calendar month and seven days after the end of the VAT accounting period. For example, if your VAT quarter ends on March 31st, the return and payment are typically due by May 7th. Businesses using the Annual Accounting Scheme have different deadlines.  

Nil Returns

Even if a business has no VAT to report in a specific period (no sales or eligible purchases), it must still submit a "nil" VAT return.

Information Included

A VAT return requires businesses to declare:

·      Total sales and purchases for the period.  

·      The amount of VAT due on sales (output tax).  

·      The amount of VAT that can be reclaimed on purchases (input tax).  

·      The net amount of VAT payable to HMRC or refundable to the business.  

Payment/Repayment

If the output tax exceeds the input tax, the business must pay the difference to HMRC by the deadline. If the input tax exceeds the output tax, the business can usually reclaim the difference from HMRC.  

Record Keeping

Businesses must maintain detailed records of all VAT-related transactions for at least six years to support the information provided in their VAT returns.  

Penalties

Failure to submit VAT returns or pay VAT on time can result in penalties from HMRC.  

In simple terms, a VAT return is how a VAT-registered business accounts for the VAT it has collected from customers and the VAT it has paid to suppliers, settling the difference with HMRC. It's a fundamental part of the UK's VAT system.  

There are different VAT schemes available that can affect how VAT returns are prepared and submitted, such as:

Standard VAT Accounting Scheme

The most common method, where businesses account for VAT when invoices are raised.

VAT Flat Rate Scheme

A simplified scheme for small businesses where VAT is paid at a fixed percentage of turnover. Businesses on this scheme generally cannot reclaim input tax (with some exceptions for capital assets over £2,000).  

VAT Cash Accounting Scheme

VAT is accounted for when payment is received from customers and made to suppliers, improving cash flow.  

VAT Annual Accounting Scheme

Businesses submit one VAT return per year and make advance payments throughout the year.  

VAT Margin Scheme

Used for businesses selling second-hand goods, antiques, and collectibles, where VAT is calculated on the profit margin rather than the full selling price.  

Understanding VAT returns and the relevant VAT schemes is crucial for VAT-registered businesses in the UK to comply with tax regulations.