View an example VAT Return here with explanations below each box.
This part of our guidance provides a simple explanation of VAT and your VAT Return.
This part of our guidance provides a simple explanation of VAT and your VAT Return.
General VAT Introduction
If you make taxable supplies, you have to account to HMRC for the VAT due on your sales.
- You pay to HMRC the difference between:
- the VAT on your sales Sales Income and
- The VAT on your Business Purchases/Expenses.
- If the VAT on your Sales is more than the VAT on your Business Purchases, you will pay HMRC the balance. Most businesses will be in this position.
- If the VAT on your Business Purchases is more than the VAT on your Sales, then you will be due a refund. A refund from HMRC of VAT is unusual.
- You can only claim VAT on your Business costs.
- You cannot claim VAT without a valid VAT invoice to be allowed to claim VAT on your Business Purchases.
- See guidance for the invoice requirements to allow you to claim VAT in VAT Notice 700, sections 16 & 17 https://www.gov.uk/guidance/vat-guide-notice-700#section16
The standard VAT periods is 3 months, so VAT Returns are normally submit on a quarterly basis. You choose your quarterly VAT Return dates when you register for VAT.
You can identify your VAT Return periods by logging into your VAT account with HMRC on Gov.UK; or if you’re registered with The Tax Kit on our website, by Clicking on “VAT Return” on the menu bar and then “Select Obligation” in your account.
Deadlines: VAT Returns must be submitted and any payment made within 1 calendar month and 7 days after the end of your VAT quarter. For example, for a June quarter end you need to:
- report your VAT for the quarter ended 30th June, and
- submit your VAT Return and make any payment by 7th August.
For more information about you VAT Return, deadlines and penalties see the HMRC VAT Returns guide https://www.gov.uk/vat-returns
The money must be lodged in HMRC’s bank account by the due date. Please be aware that some methods of payment can take a few days. The different payment options are outlined in the Pay your VAT bill guide, where you’ll also find HMRC’s bank details.
For more information please refer to VAT Notice 700, https://www.gov.uk/guidance/vat-guide-notice-700, which is the main reference guide provided by HMRC to VAT. It provides:
- A guide to all the main VAT rules and procedures
- Help with problems
- Reference to more specialised publications
How to get free information and help
Some features of VAT arise less frequently or only affect certain types of business. You’ll find detailed guidance on these in other, more specialised notices and guidance provided by HMRC on their website.
In addition you can contact the HMRC VAT general enquiries helpline.
- The default option for accounting for VAT is known as Standard VAT Accounting, where you account for VAT on the basis of invoice dates (ie the Tax Point), unless you receive the cash on sales before you invoice.
HMRC offers a number of schemes which are designed to make accounting for VAT easier for you:
- The Cash Accounting Scheme allows eligible businesses to account for VAT on the basis of payments received and made - for more information about this scheme, see VAT Notice 731: cash accounting.
- 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.
- If you sell direct to the public you might be able to account for VAT using a Retail Scheme - for more information about these schemes, including the special records you need to keep, see VAT Notice 727: retail schemes.
- The Annual Accounting Scheme allows eligible businesses to complete a single annual VAT return - for more information about this scheme, see VAT Notice 732: annual accounting.
Above are listed the more common VAT schemes. Please see VAT Notice 700: VAT Guide: https://www.gov.uk/guidance/vat-guide-notice-700 for more information in relation to VAT schemes and their operation.
If you are unsure of which scheme to choose, seek advice from HMRC or an accountant.
The VAT Return – A simple explanation
The primary purpose of the VAT Return is to calculate the amount of VAT that you need to pay HMRC (or how much is owed to you) for a VAT period. Normally, if your sales are more than your purchases, you will need to pay VAT to HMRC.
You can get help on completing your VAT Return, see the VAT Returns guide: https://www.gov.uk/vat-returns
Also, for more guidance see VAT Notice 700/12: How to fill in and Submit your VAT Return: https://www.gov.uk/guidance/how-to-fill-in-and-submit-your-vat-return-vat-notice-70012 which contains a checklist to help you check that your return is complete and correct.
Follow the link to our Example VAT Return.
The VAT Return can be split into 3 different Sections:
- a) Calculation of VAT Due
- b) Comparative Total Figures
- c) European Community Trading Data Collection
Please note that any references to EC trading on the VAT Return may change due to Brexit and whatever arrangements are agreed.
a) Calculation of VAT Due
This section calculates the VAT that you must pay to HMRC (or refund due to you if appropriate).
Box 5 is the calculation - the net amount of VAT that you must pay HMRC, or repayment due to you from HMRC.
Box 5 is effectively the difference between the VAT on your Sales and the VAT on your Business Purchases. This figure is calculated in the VAT Return from the figures you have input into Boxes 1,2 & 4. The VAT Return automatically calculates this number.
Please note: If the number in Box is Nil, you must still submit your VAT Return!
In Box 1 you input the VAT on your Sales (including VAT on Sales to other EC Countries).
In Box 4 you input the VAT on your Purchases (including VAT on purchases of goods from other EC countries). Include in Box 4 any VAT in Box 2 that you are entitled to claim (see Box 2 below).
You can only claim VAT on purchases used 100% for your business and only if you have a valid VAT invoice see the rules for reclaiming input VAT in VAT Notice 700, sections 16 & 17 https://www.gov.uk/guidance/vat-guide-notice-700#section16
In Box 2 you input VAT Due (but not paid) on Acquisitions from Other EC Countries.
Not many small businesses need to enter anything into this box. This box is only relevant if you buy goods (not services) from other EC countries. However, be aware that this could include goods purchased on the internet. Please note this may change due to Brexit and whatever arrangements are agreed.
- You need to calculate the equivalent of the UK VAT on all goods and related costs bought from VAT-Registered suppliers in other European Community countries.
- Do not include in Box 2 amounts where VAT has been charged by the EC vendor on the goods supplied, as this will probably be at the wrong rate.
- Instead you need to calculate the relevant UK VAT Rate and account for that in Box 2 of your VAT Return. Currently this will normally be 20/120 of the total paid, if the VAT Rate is 20%.
You may also be entitled to reclaim this amount as input VAT and do so by including the relevant figure within the total at Box 4 (but see the rules for reclaiming input VAT in VAT guide (VAT Notice 700)). Information about trading within the EC is contained in The single market (VAT Notice 725).
If you are entitled to claim the VAT, then the net result of this should be nil - ie include if the same amount is included in Box 2 and Box 4, no additional VAT will be payable.
Box 3 is a subtotal of Boxes 1 & 2. The VAT Return Automatically calculates this number.
b) Comparative Total Figures (Totals excluding VAT)
These figures are used by HMRC to check your VAT Return. They know the normal proportions of VAT to total sales and purchases and will use this to check your VAT return.
In Box 6 you input your Total Sales excluding VAT.
You must also include the total of any sales of goods (not services) to other European Community countries (excluding VAT) - ie the total from Box 8.
In Box 7 you input your Total Purchases excluding VAT.
You must also include the total of any purchases of goods (not services) from other European Community countries (excluding VAT) - ie the total from box 9.
c) European Community Trading Data Collection (Totals Excluding VAT)
The VAT Return is also used to collate data on trading of goods with other countries in the European Community. Please note this may change due to Brexit and whatever arrangements are agreed.
In Box 8 you input the Total Sales to other European Community countries of goods (not services), excluding VAT. You must also include this amount in Box 6, Total Sales (excluding VAT).
In Box 9 you input the Total Purchases from other European Community countries of goods (not services), excluding VAT. You must also include this amount in Box 7, Total Purchases (excluding VAT).
If you are involved in either buying or selling goods within the EU you should read The single market (VAT Notice 725).
VAT Invoice Requirements - Coming Soon
How to pay your VAT liability - Coming Soon
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: 17-Jun-2021