VAT Return Guide
This part of the guidance provides a simple explanation of the VAT Return. It also provides guidance on some simple checking that we recommend is undertaken on completion of the VAT Return.
If you are registered on Cash Accounting scheme that means that you will be accounting for VAT on the basis of the payments you received and made in then VAT period. This is as opposed to Standard VAT Accounting where you account for VAT on the basis of the invoice date.
We’ve provided an example of a typical spreadsheet with downloads from your business bank account and some cash payments, plus the VAT Return sheet. Like in our demo video, you’ll see that we’ve colour coded the boxes on the VAT Return and the relevant cells in our example spreadsheet. You should be able to follow the colour coding to trace the relevant cells in the spreadsheet to the boxes on the VAT Return. You can then compare that tom your own VAT accounting spreadsheet.
A lot of smaller businesses use the Cash Accounting Scheme because you only need to account for VAT from your bank and cash records, rather than duplicating your records and recording all your purchase invoices as well as your payments. It also means that you don’t have to account for VAT on your sales until you’ve received the money, rather than when you invoice your customer.
The default option for accounting for VAT is known as Standard VAT Accounting. This is where you account for VAT on the basis of the invoice dates (ie the Tax Point), unless you receive the cash on sales before you invoice (see below).
To account for VAT on Standard VAT Accounting you will need to make a list of the:
- Sales Invoices that you issue to your Customers
- Purchase Invoices / Expense Receipts that you receive from your Suppliers
You need to identify and account for the VAT on each of these transactions to HMRC. The VAT on your businesses purchases will reduce the VAT payable on your Sales.
What does this mean if you use a spreadsheet for your books and records?
For the all your Sales and Purchases you’ll need to list all your transactions. This will normally be a separate sheet for Sales and another for Purchases/Expenses.
On each sheet (ie Sales & Purchases) for the VAT period you’ll then need to add up:
- total the VAT
- total excluding VAT
As a control we suggest you also total the total including VAT. so you can make sure it all adds up OK.
If you look at our example spreadsheet, this is for Cash Accounting, but the principles are the same.
- Instead of our sheet for Bank Payments - you will have a sheet listing your Purchase Invoices and Expense Receipts, that you received from your Suppliers in the period
- Instead of our sheet for Bank Receipts - you will have a sheet listing the Sales Invoices, that you issued to your Customers in the period
Each of these sheets will need to be according to the date on the invoice, rather that the date of payment. The only exception to this is where your receive the money on a sale from a customer before you have invoiced them. You must account for VAT on Sales on the earlier of:
- 1. when you receive the money or
- 2. invoice your customer.
Submitting your VAT Return on the Flat Rate Scheme from spreadsheet via The Tax Kit bridging tool is easy.
There will be little difference to how you prepared and submitted your VAT Return before MTD. MTD does not allow any figures to be typed into the VAT Return, but you can type into your underlying spreadsheet that feeds through to your VAT Return. Consequently, any calculations or adjustments that are required must be calculated in the underlying digital record (ie spreadsheet); and then linked into the relevant Box in the VAT Return Bridging software. The VAT Return can then be submitted to HMRC in accordance with MTD. Anything typed into the VAT Return will cause the Return to be rejected by HMRC’S automatic checking.
All you need to do is:
- Make the calculations and adjustments as you did in the past.
- Make sure that you do any calculations and adjustments in the accounts spreadsheet that is the basis of your VAT Return. We suggest you use a separate sheet in the spreadsheet for this.
- Link the resulting figures into the VAT Return Bridging Tool that you’ve downloaded, much in the same way as you would have when you typed them into your VAT return before.
And that’s it - easy.
The Flat Rate Scheme offers eligible, small businesses an alternative to the normal basis of accounting for VAT. If you use the scheme, you won’t have to record VAT in your accounts against every purchase. Instead, you can work out the net amount of VAT you need to pay HMRC as a percentage of your total sales (including VAT). Some aspects of the scheme are quite complicated. For more information about the scheme, see VAT Notice 733: Flat Rate Scheme for small businesses
As before MTD, you must ensure that you use the correct Flat Rate Scheme percentage and make the correct calculations and adjustments in accordance to the rules. This includes the assessment of whether you are a “Limited Cost Business” for every VAT Return that you submit.
What are the additional for Digital Record Keeping Requirements under MTD (Making Tax Digital)?
- Digital copies of Sales invoices provided to customers
- Digital record (list) of sales invoices issued (though that record doesn’t have separate out the VAT and the totals including and excluding VAT (Gross & Net))
- Digital record Calculation & Submission to HMRC of VAT Return
- Calculation of VAT due on the basis of appropriate % rate applied to sales invoice record
- Record of any Qualifying Capital Purchases:
- Total Payment / input VAT to be claimed
- Resulting adjustment to VAT Return
- “Limited Cost Business” Assessment and adjustment to VAT payable if necessary
- Digital population of relevant VAT Return boxes with correct figures
- Digital record of VAT Return Submission to HMRC
- Digital Record of HMRC Receipt Confirmation, receipt number and / or any other information sent by HMRC
Under Making Tax Digital you need to keep digital records for your transactions (ie on computer - which can be on spreadsheet). Under the Flat Rate Scheme you don’t need to keep a digital record of:
- your purchases, unless they are capital expenditure goods on which VAT can be claimed
- “relevant goods” used to determine if you need to apply the “Limited Cost Business” percentage rate
However for both VAT and Income Tax purposes there is a requirement to keep a record (though not necessarily Digital) of all individual sales and purchases transactions. For businesses using the Flat Rate Scheme, that record doesn’t have separate out the VAT and the totals including and excluding VAT (Gross & Net).
We’ve provided some simple guidance and useful links as an introduction to help you. However, this guidance and links are not comprehensive and the VAT regulations are complex. For a full understanding of the rules, please refer to HMRC guidance on their website or discuss with your accountant how the rules apply to your specific circumstances. Please bear in mind that responsibility for the accuracy of your tax affairs remains with you, the taxable person.
Last updated on: 25-Oct-2019