How VAT Returns Work in the UK.
Understanding VAT Returns can feel a bit overwhelming, but they’re simpler than you might think! If you’re a business owner in the UK, knowing how VAT Returns work can help keep your company on the right side of HMRC (His Majesty’s Revenue and Customs). This guide breaks down everything you need to know about VAT Returns, including how to complete them, deadlines, and common FAQs.
What is a VAT Return?
A VAT Return is a report you send to HMRC to calculate how much VAT you owe—or how much they owe you—based on your sales and purchases. VAT-registered businesses in the UK typically submit VAT Returns every three months, and the amount owed is simply the VAT on sales minus any VAT you can reclaim on purchases.
Who Needs to Submit a VAT Return?
All businesses registered for VAT must submit a VAT Return, even if there’s nothing to pay or reclaim. If your business turnover exceeds £85,000, VAT registration is required. However, smaller businesses can voluntarily register if it benefits them. Non-registered businesses don’t need to submit VAT Returns.
How to Submit a VAT Return
Submitting your VAT Return is now mostly digital, thanks to Making Tax Digital (MTD), a UK government initiative that requires VAT-registered businesses to use approved software for VAT Returns.
Digital VAT Returns and MTD
With MTD in place, VAT Returns must be filed online via HMRC-approved software. This rule applies to businesses with a taxable turnover above £85,000. Smaller businesses that voluntarily register for VAT can submit VAT Returns manually until they’re required to comply with MTD.
VAT Return Deadlines
The VAT Return due date is 1 month and 7 days after your three-month accounting period ends. So, if your period ends in March, your VAT Return would be due by May 7th. The same deadline applies to any payment due to HMRC.
Paying Your VAT Bill
If you owe more VAT than you’re able to reclaim, you must pay the difference to HMRC. You can choose from several payment options, including direct debit, online payment, or standing order. Just remember to allow enough time for the payment to reach HMRC by the deadline!
Receiving a VAT Refund
If your VAT Return shows that you can reclaim more VAT than you owe, HMRC will refund the difference, typically within 30 days. They’ll transfer the amount directly to your bank account if you’ve shared your details with them; otherwise, you’ll receive a cheque.
Frequently Asked Questions About VAT Returns
What is VAT?
VAT (Value-Added Tax) is a consumption tax added to most goods and services sold in the UK. Businesses charge VAT on sales and pay VAT on purchases, but only VAT-registered businesses need to submit VAT Returns.
How often do I need to submit VAT Returns?
Most businesses submit VAT Returns every quarter, or every three months. However, some businesses, especially those using the Annual Accounting Scheme, only submit once per year.
What is the penalty for late VAT Returns?
For VAT return periods starting after January 1, 2023, HMRC applies a points-based penalty system. For each late VAT Return, you’ll earn a penalty point. When you reach the threshold, a fine of £200 is issued.
Can I correct a mistake on my VAT Return?
Yes, you can correct small errors (up to £10,000) on your next VAT Return. Larger errors may require you to submit a VAT652 form, which is a voluntary disclosure.
How can I submit my VAT Return?
VAT Returns must be submitted electronically through HMRC-approved software or an agent registered with HMRC for online VAT services.
Can I claim import duty on my VAT Return?
No, import duty isn’t recoverable on your VAT Return. Import VAT, however, can be claimed as long as you have a valid import VAT certificate.