Value Added Tax (VAT) can seem daunting, but once you get the hang of the process it becomes much more manageable. Whether you’re a seasoned business owner or a newbie to the world of commerce, understanding how to make a VAT submission is really important. Let’s take a look at how you can handle VAT submissions like a pro.
What is VAT?
Value Added Tax, or VAT for short, is added onto the sale of some goods and services whenever their value increases throughout the supply chain. Most goods and services in the UK are subject to VAT, but whilst any business can pay it, only VAT-registered businesses can charge it to their customers or reclaim what they pay.
When do I need to register for VAT?
Generally, you will need to register for VAT if your business’s taxable turnover reaches the £90,000 registration threshold in a 12-month period.
You’re also allowed to register for VAT voluntarily even if your turnover is below the threshold. Some businesses find it beneficial if they regularly claim back more VAT than they would need to collect on their sales.
Once registered, you’ll receive a VAT registration certificate which confirms your VAT number, and your ‘effective date of registration’ (the date from which you need to start charging VAT). Don’t forget to add the VAT service to your tax account!
Keeping accurate VAT records
Accurate record-keeping is the cornerstone of a smooth VAT submission process – and a requirement, so don’t get a telling-off for non-compliance! The Making Tax Digital rules mean you’ll need to keep your VAT records electronically, showing:
- Sales, purchases, and related records, such as invoices, receipts, transfers and exchanges, refunds, and any other documentation related to transactions
- VAT charged and paid, including the VAT you’ve charged your customers (output tax) and the VAT you’ve paid on business-related goods and services (input tax)
Making a VAT submission to HMRC
Your VAT submission is based on the transactions which take place over a set period of time – known as a VAT period – so data accuracy is jolly important. VAT return periods can vary depending on what sort of VAT scheme you use and when you first registered, but most businesses submit theirs on a quarterly basis.
Your return period will be confirmed once you register for VAT – you’ll get a letter from HMRC telling you all about it (or you can look it up in your tax account once you lose the letter or the dog eats it).
So how do you actually get this information over to HMRC? Well, you have two options:
- Keep electronic VAT records, and then use separate bridging software to submit information for each VAT reporting period
- Use MTD-compatible software to record your transactions, and then use the same software to make your submission straight to HMRC (this feels like a good time to mention that Pandle is MTD VAT approved)
What happens after I make a VAT submission?
Making your VAT submission tells HMRC about your:
- Output tax: The VAT you charged on your sales
- Input tax: VAT you paid on purchases
The difference between these two amounts is what you either owe to HMRC or can reclaim. Pay more VAT on purchases than you charge on sales during the same period of time, and you can reclaim the difference; if it’s the other way around, you’ll have a bill to pay. Your VAT online account will show the balance of what you owe, and the deadline for paying it.
Does MTD VAT software calculate my return for me?
The process for using MTD VAT software is easier than it sounds. Some software even automates lots of the processes for you. MTD software (like Pandle!) automatically calculates your VAT return each time you invoice a customer or enter a transaction, so you’ll have a good idea of what’s going on before you make your submission.
What is the deadline for submitting a VAT return?
The deadline for making a VAT submission and paying anything you owe is usually one calendar month and seven days after the end of an accounting period. For example, if your accounting period ends on 31st March, your VAT Return is due by 7th May.
This might vary if you use a different type of accounting scheme (such as VAT Annual Accounting) – so double-check your tax account to make sure!
Find out more about managing your VAT with accounting software like Pandle! Create your free account today – no payment details or pesky contracts required.