Making a VAT return: how it works ?

What is a VAT return?

All VAT-registered businesses in the UK, including self-employed workers, have to regularly report to the government how much value-added tax (VAT) they have collected from clients, and how much VAT they have paid on business expenses. This report takes the form of a document referred to as a “VAT return”, which companies submit to the HMRC, usually every three months.

If a company is registered for VAT, it must submit a VAT return even if it has no VAT to report. If it is not registered for VAT, then the company does not have to include VAT on its invoices and does not have to submit a VAT return.

The VAT return looks at the total sales and purchases over the relevant accounting period (usually the previous three months). In other words, it calculates the difference between the amount of VAT the business has collected that it owes to the government, which is known as “output VAT”, and the amount of VAT it has paid out and can claim back, which is known as “input VAT”. Depending on the difference between these two figures, the company will either have to settle its VAT bill or will receive a VAT rebate.

How to submit a VAT return

From 1 April 2022, all VAT-registered businesses must submit their VAT returns through Making Tax Digital (MTD). MTD is a service designed by the UK government to digitise all tax information and to make it easier for businesses to file their VAT returns online and keep track of their situation. Failure to join MTD can result in a financial penalty.

In order to use MTD, you will need to have MTD-compatible software. The UK government has published a list of MTD-compatible software, including low-cost options, on their website.

The HMRC runs a series of webinars to help small businesses with the new procedure. Information on these webinars can be found on HMRC’s Making Tax Digital help page.

By using MTD, you can regularly consult your VAT online account to check when your next VAT return is due and keep up with the deadlines for any payments.

In order to submit a VAT return, you will need to know what rate of VAT applies to the goods or services you sell (standard rate, reduced rate or zero rate), what must be included in your invoices, and what VAT scheme you fall within. You can seek advice from a tax advisor or check out a wide range of useful information online.

When should VAT returns be filed?

Every business will file its VAT return on a different date, as the reporting period begins when the business was first registered for VAT.

Under most circumstances, you will have to file a VAT return every quarter covering the preceding three months (referred to as your “accounting period”). The deadline for submitting a VAT return is usually one calendar month and seven days after the end of the relevant accounting period.

However, this is also the deadline for paying any VAT due to HMRC, so you will have to take that into account when working out when to file your return.

Settling a VAT bill

Once the VAT return has been completed with all the required information, it may indicate that the company owes more VAT than it is able to claim back. In this case, the company will have to pay that amount to HMRC. The time period in which this bill must be settled is limited – and the date at which it must be paid is the same as the deadline for filing the tax return. So, if you think you are going to have VAT to pay, make sure you give yourself time to make the payment. 

VAT bills can be settled in a number of ways, including by direct debit, standing order, and online credit and debit card payments.

Special procedures were put into place during the coronavirus pandemic to enable companies to defer the payment of their VAT. However, that scheme has now closed, and standard payment deadlines (and penalties) apply.

Getting a VAT refund

If a VAT return indicates that the company can reclaim more VAT than it has collected, it will get a refund from HMRC. This takes place automatically, and the VAT repayment usually reaches you within a maximum of 30 days. If the company has provided HMRC with its bank details, the payment will be made directly into its account.

Special circumstances

As is often the case, there are many exceptions to the rules when it comes to VAT. Specific rules apply to issues such as reverse charge VAT (when the customer is responsible for declaring the VAT rather than the seller), VAT payable on deposits and pre-payments for goods and services,  

Conclusion

Filing a VAT return doesn’t have to be a headache. Making Tax Digital has streamlined the process and Mooncard can help make it even easier by allowing you to track your expenses and VAT. Find out more about how Mooncard can make your life easier by booking a no-strings-attached demonstration.