VAT Guide for UK Business

First things first, let's define exactly what we mean by VAT returns. Essentially, this is a form that you as a business must complete and submit to HMRC - on a regular basis. It details the amount of VAT charged on sales and the amount of VAT you have paid on purchases. The frequency of VAT returns depends on your business's VAT registration status.

If you are not VAT registered, you are not required to submit VAT returns.

VAT-registered businesses must charge VAT on their sales at the appropriate rate. There are different VAT rates for different types of goods and services. The standard VAT rate in the UK is currently 20%. However, there are also reduced rates for certain goods and services, as well as zero-rated items that are not subject to VAT. It is important as a businesses to understand which VAT rate applies to which products or services, and to charge the correct amount of VAT on sales.

Here are the current VAT rates for different goods and services in the UK as of 2024:

• Standard rate: 20%
• Reduced rate: 5%
• Zero rate: 0%

The standard rate of 20% applies to most goods and services, while the reduced rate of 5% applies to specific goods and services such as sanitary products, energy-saving measures, and children's car seats. The zero rate of 0% applies to zero-rated goods and services such as most food and children's clothes

To register for VAT in the UK, you need to complete the VAT1 form. The information you'll need to provide depends on the type of your business, but you'll generally need the following documents:

- Your business name, address, and contact details
- Your VAT taxable turnover for the last 12 months
- Details of any other businesses you've owned in the past two years
- Your business bank account details
- Your company registration number (if applicable)
- Two documents to authenticate your identity, such as a passport, driver's license, or government-issued identity card.

You may also need to provide two documents to further authenticate your identity, such as a birth certificate or marriage/civil partnership certificate.

If you're registering for VAT as a limited company, you'll also need to provide your payslips, P60, and Self Assessment return. You don't need to have a Self Assessment UTR to register for VAT, but if you have one, you must provide it.

To register for VAT in the UK, you can follow these steps

As mentioned earlier, VAT returns involve reporting the VAT you have charged on sales and the VAT you have paid on purchases. It is important to keep accurate records of these amounts so that you can report them accurately on your VAT return. It also makes life easier for you, if you regularly update and not leave it for too long.

If you are VAT registered, you will need to submit a return every quarter.

Ensuring compliance with VAT regulations is a crucial aspect of VAT returns. This involves keeping track of all the relevant deadlines, as well as making sure you have all the necessary documentation in place. Failing to comply with VAT regulations can result in fines and other penalties.

In order to accurately complete your VAT return, you will need to have a clear understanding of your business's VAT accounting. This includes keeping track of VAT-inclusive and VAT-exclusive prices, as well as understanding how to calculate the VAT due on each sale.

Calculating Your VAT

Once you have gathered all the necessary information, you will need to calculate the total VAT due on your sales and the total VAT you are entitled to claim back on your purchases. This process is known as VAT computation.

There are different online tools available to calculate VAT in the UK, such as FreshBooks, VAT Calculator UK, VAT Calculator, Wise, and Omni Calculator.

It's important to note that if you fail to register for VAT when you should have, you may be liable to pay a penalty. If you make a mistake on your VAT return, you must correct it as soon as possible. If you discover that you have overpaid or underpaid VAT, you must adjust your next VAT return to reflect the correct amount.

VAT liability in the UK refers to the amount of VAT that a business owes to HM Revenue and Customs (HMRC) authority.

Your VAT liability is the difference between the VAT you have charged on sales and the VAT you are entitled to claim back on purchases. If this amount is positive, you will need to pay it to HMRC. If it is negative, you may be entitled to a VAT refund.

It is calculated by totalling the amount of VAT collected as business is done, then subtracting any VAT credits. VAT liability is also called VAT obligation, which means that your business is obligated to pay the rate of VAT as defined by HMRC.

You can only reclaim VAT on tax deductible expenses used specifically for your business. You can’t reclaim VAT on goods and services that are for non-business use or are for client entertaining. You also can’t claim for services that are exempt from VAT, such as insurance.

Some common goods and services that small businesses could claim back VAT on include IT equipment, stationery, and travel expenses.

To reclaim VAT as a business, you need to submit a VAT return to HMRC every three months. This will show how much VAT you’ve charged to customers and how much you’ve paid. All VAT registered businesses should now be signed up for Making Tax Digital for VAT.

It's important to note that the process of accounting for VAT and claiming it back can be complex and time-consuming. Some small businesses may choose to hire an accountant to help with the process.

Paying an accountant to help you with your VAT tax return takes all the hassle out of going through all the paperwork for you previous year, as well as deductions.

You will gain from their expertise and experience and be confident that all your information has been submitted accurately.  

If you have any questions about your VAT Returns, get in touch today.

I will give you professional VAT advice so you are compliant with all relevant requirements. With expertise and support, you can have peace of mind knowing that your VAT returns are in good hands.

Making sure that no matter your situation, you are being correctly taxed.  I take care of your VAT returns so you don't have to worry about getting it wrong!

- Andrew Passer

Institute of Financial Accountants

The Institute of Financial Accountants (IFA) is an internationally recognised professional accountancy membership body providing dedicated support to SMEs and SMPs.

Get in touch for your VAT consultation