Value Added Tax (VAT) is a major part of the UK’s tax system and will apply to most goods and services supplied by business. Running a small business or a large enterprise, VAT returns are a complicated thing to handle. It requires a very specific comprehension of what’s expected and checking to make sure that it’s being followed. If you’ve got your VAT returns under control and need some advice on how to improve them, then read down to the end of this blog!
VAT and How to Complete VAT Returns?
VAT is a tax on consumption, paid by producers and by consumers at each stage of the supply chain from the production to the final sale. For businesses registered for VAT, VAT is charged on sales and paid in respect of purchases, and the net difference is reported in a VAT return.
Who is required to register for VAT?
If you’re running a business in the UK, and you have a taxable turnover of over £85,000 in a year this needs to be registered for VAT. Nevertheless, smaller firms can also voluntarily sign up to reclaim the VAT element on their expenses.
Types of VAT Schemes
The UK government offers several VAT schemes to cater to different business needs:
Standard VAT Accounting: Submissions of actual VAT returns consistent with sales and purchase totals.
Flat Rate Scheme: It simplifies VAT for smaller businesses because turnover is calculated as a fixed percentage of its VAT.
Cash Accounting Scheme: It allows the businesses to account for VAT on the basis of cash received and cash paid as opposed to invoices.
Annual Accounting Scheme: It saves paperwork in the form of submitting one VAT return per year and making interim payments during the course of the year.
How to File a VAT Return
VAT returns can be defined as the documents submitted to the government containing the VAT charged to customers and that charged on the purchases made. The process typically includes the following steps:
Keep Accurate Records: The minute records of the sales should be kept along with the purchase records and the records of VAT charged as well as VAT paid.
Use HMRC-Compatible Software: Under the Making Tax Digital (MTD) rules, all companies already registered for VAT have no option other than to use compliant software for the submission of their returns.
Calculate Your VAT Obligation: Subtract the amount of VAT charged to your inputs (input VAT) to the VAT amount charged to your customers (output VAT).
Submit Your VAT Return: The other option on how to file your return is by use of an HMR online software before the due date.
Pay or Reclaim VAT: Retail any Vakue Added Tax due or claim a credit if input VAT has been paid and is more than output VAT.
Some of the frequent problems that taxpayers face with reference to VAT returns include;
1. Keeping Track of Deadlines
Your VAT returns are normally filed one month and seven days after your specified VAT return period. Failing to meet deadlines comes with some consequences.
Solution: You could use the digital tools or even put reminders for the various dates by which the submissions are supposed to be done.
2. Managing Complex VAT Rules
Manufacturing or construction industries and export services of goods and services can be especially difficult to deal with the VAT.
Solution: Consult with a professional advisor on other special rules that apply in your particular sector, or with reference to the HMRC guide.
3. Accuracy in Record Collection
Poor or disorganized records put the health organization at risk of having compliance problems or making mistakes.
Solution: Purchase accounting software and set up record keeping working procedures for regular use.
This paper aims to look at the best practices when preparing for VAT Returns.
1. Understand Your VAT obligations
Familiarise yourself with VAT rates: which are; Standard – 20% Reduced – 5% Zero – rated – 0%.
Determine which particular goods and which services are either exempted or falling outside VAT taxation.
2. Leverage Technology
This is because cloud applications like QuickBooks, Xero or Sage are considered more compatible with the HMRC system than other ones are.
Therefore the following procedures should be computerized; tasks like invoicing and expense tracking among others.
3. Record all Homes Documents and Data from Admissions through Discharge
Similarly to bills, receipts and those records concerning the VAT must be stored for not less than six years in accordance with the requirements specified by the HMRC.
It is also important that your records be balanced from time to time.
4. You should also be claiming VAT relief where applicable.
Bad Debt Relief: It is possible to reclaim VAT on unpaid invoices you have had for more than six months.
Capital Expenditures: It is also possible to reclaim VAT on business items that may include machinery or vehicles.
5. Plan for Cash Flow Management
Payments for VAT can be a challenge on cash flow, more especially to young businesses.
Pay VAT according to actual receipt using the cash accounting scheme.
Check on the cash flow frequently to be in a position to make available VAT sums.
6. Conduct Regular Reviews
It is advisable to go through your VAT returns now and then, in an attempt to make certain deviations.
Get more guidance on how to enhance your offerings based on VAT.
Ideas on Business Types
For Small Businesses
Consider the Flat Rate Scheme: VAT can be made easier by paying a flat amount of turnover in relation to the certain percentage.
Track Mileage and Expenses: Recover VAT charged on the business related expenses such as fuel or travelling.
For Exporters
Learn about zero-rating of VAT concerning exported goods that are shipped to a country other than the United Kingdom.
Document well clear in order to support the export status of goods.
For Construction Businesses
We need to become acquainted with the functioning of the domestic reverse charge mechanism.
Subtype: Monitor work of the subcontractors and review their invoices.
Avoiding VAT Penalties
HMRC frowns at compliance delays, under estimations and/or inaccurate submissions and will enforce penalties accordingly. Here’s how to avoid them:
Meet Deadlines: VAT returns and VAT payments should be done when due.
Ensure Accuracy: Check and double check figures included in your work and make certain that all accounts have been documented as required.
Communicate with HMRC: Inform HMRC immediately if you cannot complete requirements or experience some forms of financial constraint.
The Responsibility of Professional Consultants
That being said, if VAT returns seem daunting to you, you may hire the services of an accountant or a VAT specialist. They can:
Assist you to understand several and sensitive VAT regulations.
Make it compliance and correct.
Custom advice which would help the firm in the process to get the maximum VAT back in the shortest time possible.
VAT Returns in the Digital Age
Recently, the so-called Making Tax Digital emerged which puts new compliance demands to the business world advancing its digitalisation. This is endeavour is meant to help lessen mistakes and enhance the flow of taxes submissions.
Key Requirements of MTD
The transactions included in VAT should be documented digitally.
File returns using compatible software to enable preparation for the direct submission to the HMRC.
Hence adapting to these changes gives businesses an opportunity to work smart and decrease on VAT returns’ inaccuracies.
Conclusion
VAT returns are an essential feature of business processes, which imply the need for time and careful approach. When it comes to managing regulatory obligations, the familiar saying “the devil is in the detail” could not be truer; but with careful planning and the use of technology it doesn’t have to be difficult or time-consuming to meet all the regulatory requirements. Being informed and avoiding negligence is especially important whether you have a one-man business or represent a large company.
If further assistance is required or there are some special circumstance involved within the account, it is better to consult the professional to manage the VAT returns problem efficiently. Therefore, good preparation and regular hard work should be used in observing compliance with the VAT requirements as is just a normal business practice.