How to do a VAT Return

A VAT return is a tax form that businesses registered for Value Added Tax (VAT) in the UK must submit to HM Revenue and Customs (HMRC) at regular intervals, usually every three months. This form details how much VAT the business has charged on sales and how much VAT has been paid on purchases, ultimately calculating the amount of VAT due to be paid or reclaimed from HMRC.

This article will provide a comprehensive guide to completing a VAT return, covering everything from understanding what a VAT return is to submitting it to HMRC.

What is a VAT Return?

A VAT return summarises a business's VAT activity over a specific period, known as the VAT accounting period, which is typically quarterly. The return calculates:

• Output VAT: VAT the business has charged on sales to customers.

• Input VAT: VAT the business has paid on purchases from suppliers.

• The difference between output VAT and input VAT determines whether the business needs to pay VAT to HMRC or if they can reclaim VAT.

When Do You Need to Submit a VAT Return?

You must submit a VAT return if you are VAT-registered, even if:

• You have no VAT to pay or reclaim for that period.

• You are not actively trading (you still need to submit a "nil return").

• Your sales are below the VAT registration threshold (though you voluntarily registered for VAT).

VAT returns are typically submitted every quarter, with deadlines usually one calendar month and seven days after the end of your VAT accounting period. It's important to meet this deadline to avoid late filing penalties.

Information You Need to Submit a VAT Return

To accurately complete your VAT return, you’ll need the following information:

• Total sales (excluding VAT) during the VAT period.

• Total purchases (excluding VAT) during the VAT period.

• VAT charged on sales (output VAT).

• VAT paid on purchases (input VAT).

• VAT owed from previous periods (if applicable).

• Any adjustments such as bad debts or reverse charge transactions.

Step-by-Step Guide to Completing a VAT Return

1. Log in to HMRC’s Online Service

To submit your VAT return online, log in to your HMRC business account. You’ll need your Government Gateway ID and password to access the VAT return portal.

If you're using Making Tax Digital (MTD) for VAT, you must use compatible accounting software that links directly to HMRC. Many accounting packages like Xero, QuickBooks, or Sage have this feature built in.

2. Gather Your Sales and Purchase Records

You’ll need accurate records of:

• Sales (known as outputs), including any goods or services you sold during the VAT period.

• Purchases (known as inputs), including any goods or services you bought from other businesses.

Ensure that all the invoices and receipts you’ve collected are VAT-compliant, showing the correct VAT amounts.

3. Calculate Your Output VAT

This is the total VAT you’ve charged to your customers on sales during the VAT period. Output VAT is calculated as follows:

• Find the total value of your VAT-able sales (excluding VAT).

• Multiply by the applicable VAT rate (standard 20%, reduced 5%, or zero-rated).

This figure will be reported in Box 1 of your VAT return.

4. Calculate Your Input VAT

This is the total VAT you’ve paid on your business purchases and expenses during the VAT period. Input VAT is the VAT you are eligible to reclaim.

To calculate input VAT:

• Total up the VAT you’ve paid on VAT-able goods and services bought from other VAT-registered businesses.

• Exclude any VAT that is not reclaimable, such as VAT on personal expenses or items not wholly for business use.

Input VAT is entered in Box 4 of the VAT return.

5. Calculate Your Net VAT Due

Once you have the figures for output VAT (Box 1) and input VAT (Box 4), you can calculate the net VAT amount.

• If output VAT is greater than input VAT, you owe VAT to HMRC. The amount you owe will be reported in Box 5.

• If input VAT is greater than output VAT, you can reclaim VAT from HMRC. This will also be entered in Box 5.

6. Declare the Total Sales and Purchases

You’ll need to declare the total value of sales and purchases during the VAT period:

• Box 6: The total value of sales (excluding VAT).

• Box 7: The total value of purchases (excluding VAT).

These totals should include all sales and purchases, not just those subject to VAT.

7. Enter Any VAT Adjustments

Some adjustments may be required for:

• Bad debt relief: If a customer has not paid an invoice and you’ve written off the debt, you may adjust for VAT previously declared.

• Partial exemption: If you sell both VAT-able and exempt goods or services, you may need to adjust for VAT on input costs.

Adjustments are entered in Box 1 or Box 4, depending on whether they increase or decrease the VAT due.

8. Submit Your VAT Return

Once you've entered all the necessary figures, review the information to ensure it is accurate. After verifying the data, you can submit the VAT return through your HMRC online account or using compatible MTD software.

9. Make the VAT Payment (if Applicable)

If you owe VAT to HMRC, you must make the payment by the due date, which is one calendar month and seven days after the end of your VAT period. Payments can be made through:

• Direct debit (set up via your HMRC account).

• Online banking.

• Debit/credit card payments.

• Bank transfer.

Ensure that your payment reaches HMRC by the deadline to avoid penalties.

Deadlines for Submitting VAT Returns

You must submit your VAT return and pay any VAT owed by the following deadlines:

• Quarterly returns: The deadline is one calendar month and seven days after the end of the VAT period.

• Annual VAT returns: Some businesses may be eligible to submit one return per year under the Annual Accounting Scheme. The deadline is one month after the end of the accounting year.

Missing the deadline can result in fines, penalties, and interest charges.

How to Access Your VAT Account and Payment History

You can access your VAT account through the HMRC online portal. This will allow you to view:

• Past VAT returns.

• Outstanding payments or refunds due.

• Payment history, including details of VAT already paid.

If you’re using accounting software with MTD, the software should allow you to track these details and integrate with HMRC’s system.

What to Do If You Cannot Pay Your VAT Bill

If you’re unable to pay your VAT bill on time, it’s crucial to contact HMRC as soon as possible. HMRC may allow you to set up a Time to Pay arrangement, which could let you spread the VAT payments over an agreed period. Keep in mind that interest will likely accrue on any deferred payments.

Conclusion

Filing a VAT return may seem complex, but with a clear understanding of the process and accurate record-keeping, it becomes manageable. Ensure you follow the steps outlined above, meet all deadlines, and accurately report all VAT collected and paid. If you’re unsure about any aspect of your VAT return, consider using a qualified accountant or professional accounting software to help you stay compliant with HMRC’s rules.