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VAT Return Preparation, Filing and VAT Scheme Advice

Registration for VAT

If your business has or will have ‘taxable supplies’ (sales) of over £85,000 in a year you will need to register for VAT and prepare and submit VAT returns to HMRC – usually quarterly. However not all sales are taxable supplies and – depending on the type of business and customer base it can be advantageous to voluntarily register for VAT, even if your sales are below the threshold as this will allow you to reclaim VAT on your purchases.

We can help you:

  • Work out if you need to register for VAT.
  • Help you decide if it would be advantageous to register – even if you have not exceeded the threshold.
  • Help you decide on the best VAT scheme for you – there are various options.
  • Complete the necessary VAT registration forms.
  • Advise you on your responsibilities when you are registered.
  • Monitor your VAT to see if it would be advantageous for you to move from one VAT scheme to another.
  • Prepare / check / submit your VAT returns
  • Help you transition to Making Tax Digital for VAT (see below)

If you would like a free no obligation meeting to discuss how we can help with your VAT compliance just get in touch.

VAT applies to all types of business from self-employed sole traders to limited companies. You can read about these different forms of business on our sole trader, partnership and statutory company accounts pages.

Making Tax Digital (MTD) for VAT

The majority of businesses that exceed the VAT threshold will need to comply with the new MTD for VAT rules from 01st April 2019. But what does that mean? If you are using MTD compliant book keeping software you just need to register for MTD for VAT. If you keep paper records or use Excel it’s not that simple.

If you don’t want to start using a book keeping package the answer is to use Excel with special ‘bridging software’ that you use to file your VAT returns.

We can help you by providing spreadsheets if you need them, helping you get used to Excel and also find the right bridging software for you.

Accounting for VAT

When you are registered for VAT you must account for VAT in your book keeping records. You will also need to issue VAT invoices in the correct format. We can help you set up your book keeping system to account for your VAT correctly. We can also help you modify an Excel based or manual system to account for the VAT on your sales and purchases.

Whatever type of book keeping system you are using we can help you ensure that you are keeping your VAT records correctly. Failure to do so can result in costly mistakes in your VAT returns and penalties in the event of a VAT inspection.

VAT returns

VAT Returns usually need to be submitted to HMRC quarterly. The deadline for submission is one month and seven days after the end of a VAT quarter (so if a VAT quarter ends in March the deadline is 07th May).  The payment is due on the same date but if you choose to pay by Direct Debit the money will be collected slightly later.

If you would like a free no obligation meeting to discuss how we can help with your VAT returns just get in touch.

VAT inspections

In most cases businesses are selected for a VAT inspection by a computerised selection process based on criteria including the businesses turnover, its trade class and past compliance history. Vat inspections can be intense. We can help by attending during the inspection and dealing with any queries raised by the VAT inspector.

VAT schemes

Did you know that there are a variety of different VAT schemes that you can use to report VAT? Each has advantages and disadvantages and It is always worth considering which is best for your business and your cash flow.

If you would like a free no obligation meeting to discuss how we can help with your VAT compliance and choice of VAT scheme just get in touch.

Standard VAT scheme

Using the standard VAT accounting method, you fill in a VAT return to HMRC each quarter. The return contains details of all your ‘output’ VAT which is the VAT on sales invoices you have raised – whether they have been paid or not. This VAT must be paid to HMRC. The VAT charged on your purchases invoice (input VAT), is offset against the output VAT whether the purchase invoices have been paid or not. The balance is the amount due to (or to be refunded from) HMRC.

Eligibility – Any business can use the standard VAT Scheme

Advantage – You can claim back VAT on purchases when they are invoiced and before you pay them.

Disadvantage – You must pay VAT on all your sales invoices before your customer has paid you.

You would use this scheme if your customers are prompt papers or you receive immediate payment from online or shop sales because you can claim back VAT on the purchases before you pay for them.

VAT cash accounting scheme

If you use this scheme you include the VAT on sales on your VAT return only when you have received payment from your customers and you claim back VAT on your purchases when you pay your supplier.

Eligibility – Taxable turnover in the next year will not exceed £1,350,000.

Advantages:

  • You only pay across VAT to HMRC when you have received payment from your customer.
  • Bad debt relief is automatic – no claim is needed as the VAT on the bad debt won’t have been paid to HMRC.

Disadvantages:

  • You can’t claim back VAT on any purchases which you haven’t paid for in the VAT quarter even if the invoice is dated within the VAT quarter.

If you use this scheme you should pay your VAT registered suppliers before the end of the VAT quarter rather than at the beginning of the next VAT quarter as it will increase the VAT that you are able to claim back.

The flat rate scheme will usually not be beneficial for a business just starting up, which has substantial initial expenditure on equipment, stocks etc so that input tax exceeds the output tax. When the business is profitable it can transfer from the standard VAT scheme to the VAT cash accounting scheme without notifying HMRC.

Flat rate VAT scheme

The amount of VAT that you pay to HMRC is usually the difference between the VAT charged to your customers and the VAT paid in your purchases – but not with the Flat Rate VAT scheme.

VAT is still charged to your customers at 20% but you only pay a percentage of your VAT inclusive turnover to HMRC. The percentage depends on your industry and rates range from 4% to 16.5%.   You will not be able to claim back VAT on any purchases except on assets over £2,000.

Vat Flat Rate Scheme Record Keeping

You still need to issue VAT invoices to your customers, but you do not have to keep detailed VAT records of sales and purchase invoices. However – we strongly recommend that you do continue to keep detailed records as without them you will be unable to work out if you are actually better off under the scheme – and some businesses aren’t. You will still benefit because the preparation of your VAT return will be simpler.

Limited Cost Businesses

If you are a limited cost business, you must use a flat rate percentage of 16.5% regardless of your sector. This may mean you are worse off using the Flat Rate Scheme.

You’re a limited cost business if the amount you spend on relevant goods including VAT is either:

  • less than 2% of your VAT flat rate turnover
  • greater than 2% of your VAT flat rate turnover but less than £1000 per year

Goods do not include services and capital assets.

HMRC have published a tool you can use to determine if you are a limited cost trader

https://www.tax.service.gov.uk/check-your-vat-flat-rate/vat-return-period

Eligibility – Taxable turnover is less than £150,000 and you must notify HMRC. You will have to leave it when your turnover reaches £230,000 per annum.  You can use either the standard or cash accounting methods of reporting VAT within this scheme.

Advantages:

  • Preparation of the quarterly VAT return is much simpler.
  • There is a 1% discount on your industry percentage if you register for flat rate VAT in your first year of VAT registration.

Disadvantages:

  • You regularly need to check that this is still the best option for your business if you are buying an increasing number of goods and/or services which have VAT on.
  • If the goods you purchase are less than 2% of your turnover or less than £1,000 per year you will have to use a flat rate percentage of 16.5% whatever industry you are in.

VAT annual accounting scheme

This scheme requires you to submit a single VAT return annually.  Fixed monthly payments are made for 10 months of the year in advance of submission of your return.   Once your annual VAT return is submitted the balance is payable or you can apply for a refund if you have overpaid.  You must apply to join this scheme.

Eligibility – Taxable turnover in the next year will not exceed £1,350,000.

Advantages – Regular monthly payments

Disadvantages – Not suitable for a seasonal business as there may not be cash available in some months to pay the fixed amount or to pay the balance.  Would not suit a business that receives regular VAT refunds as the refund would only be paid annually.

Whichever scheme you choose for your business there are restrictions, advantages and disadvantages you should ensure you understand before you decide. Once you have chosen either the Flat Rate or Annual Accounting Scheme you will not be able to change to another scheme for a year. You can change from the Standard to the Cash Accounting schemes or vice-versa without notifying HMRC, but you must keep accurate VAT records during the changeover to ensure that you are reporting all the VAT that is due. The changeover is not straightforward.

If you would like a free no obligation meeting to discuss how we can help with your VAT compliance and choice of VAT scheme just get in touch.