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HMRC VAT Returns for UK Businesses – How Do They Work and More

If you are a UK business owner, your company may be required to make VAT returns every quarter. But how does this work? What is VAT and what do they charge for it? How can I get my money back? These are just some of the questions that we answer in our blog post!

HMRC VAT Returns for UK Businesses

What Is VAT?

Essentially, it’s a tax placed on goods and services that are purchased by the public and by businesses.

So how does VAT work in the UK? VAT is an indirect tax, which means that businesses are responsible for collecting this tax on behalf of the government. Businesses collect VAT on sold products and services. Afterwards, the collected VAT is transferred to HMRC.

VAT Rates

Taxes on goods and services may differ according to their VAT rates. Businesses must ensure that they charge the correct price for their products and services. Here are the three types of VAT rates in the UK.

Standard: In most cases, goods and services are offered at a standard rate. Generally, you will need to apply this rate (20% VAT) unless the products or services you’re selling qualify for one of the other rates: reduced rate or zero rates.

Reduced: This rate (5% VAT) is applicable depending on what the product or service is. It also depends on the circumstances surrounding the sale. Examples of items that fall under this category include car seats for children and household fuel or power supplies. A 5% VAT is also applied for mobility aids for the elderly, but only if the aids are for a person over 60 years of age and if they are installed at that person’s place of residence.

Zero: According to the HMRC, goods that fall under this category are still VAT-taxable. However, the VAT rate that you should be charging to all customers is 0%. This means that you are still required to record them on your books of accounts and include them on your VAT return. Examples of zero-rated goods are motorbike helmets, footwear and apparel for children, newspapers and books.

Who Needs to Charge VAT?

VAT can only be charged by a business that is registered for VAT. Your business will need to be registered for VAT when your taxable turnover reaches or exceeds the threshold of £85,000. So if you anticipate your VAT taxable turnover to exceed such a threshold in the next 30 days, then you might want to start thinking about getting registered for VAT. This applies to all types of businesses: sole proprietorships, partnerships and limited companies.

Your accountant should be able to assist you with the VAT registration process. Alternatively, you can fill out Form VAT 1 and submit it to the HMRC. There is also the option to register online. This is one of the easiest ways to complete the registration process.

Afterwards, you will be provided with your unique VAT number. This number must be included on every invoice you issue and on all company documents. It should be noted that delays when it comes to registering for VAT can occur at times.

There are some individuals or companies who choose to register for VAT out of their own volition. One of the reasons behind voluntary VAT registration is that it enables a business to seem more established.

VAT-registered businesses are required to charge the relevant VAT amount when selling their goods or services. Then, they are required to report to HMRC the amount of VAT they have collected as part of their service as well as the amount of VAT they have paid. It’s also important that they claim the VAT that they have paid if they have purchased products or services related to their business.

If you’re VAT-registered, you are not allowed to charge VAT on items that are out of scope or exempt from VAT. Exempt items include postage stamps and health services provided by doctors. Meanwhile, out of scope items include products and services purchased and used outside the UK.

VAT Invoicing

A VAT invoice is issued by a business to charge VAT to a client or to claim the VAT back. Only companies that are VAT-registered can issue VAT invoices. A VAT invoice usually includes details such as your business name, VAT number, description of the product or service, rate of VAT, the customer’s information, your registered address and any discounts applied. There are three types of invoices that businesses can use: full invoice, modified and simplified.

How Can Businesses Claim VAT Back?

Before a UK business can claim a VAT refund, it must first submit a VAT return. This is usually done quarterly. So how do you submit a VAT return in the UK? You can do this online via the HMRC website. In the VAT return form, you need to indicate the amount of VAT collected on the items you are eligible to claim VAT on. This is also referred to as input VAT.

In terms of VAT paid to HMRC, VAT-registered businesses only have to pay HMRC the difference between how much they have collected and how much they have paid. When businesses’ VAT expenditures exceed what their customers pay, HMRC reimburses them the difference.

So how do you make a VAT refund? To claim back VAT charged on purchases, you need the receipt issued by the seller. It serves as a receipt for that transaction and confirms the payment of input VAT. Receipts and invoices can be stored electronically.

Note that you can’t claim a refund if you do not have a valid VAT receipt. If you’re not sure which purchases are eligible for claiming back VAT, you may want to consider seeking advice from a tax expert first.  

Dealing with VAT Compliance

Take the stress out of VAT compliance with Nigel Butler B Limited. We can assist you in registering for VAT, submitting returns on time and dealing with VAT inspections. We also have a handy VAT calculator. Schedule a free consultation with us today.

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