VAT FAQs

Whether you need to pay VAT to HMRC – or receive the money you may be owed – completely depends on your Tax Return.

Any business or self-employed professional that is registered for VAT must, by law, submit a VAT return every three months. This period is also known as your accounting period or financial quarter.

You calculate your VAT simply by deducting the amount of VAT paid on your business products from the amount of VAT you’ve collected on sales.

If the end result is a positive number then yes, you need to pay that VAT to HMRC. If it’s negative, then they’ll pay you!

Although VAT Returns are a long process, they can be beneficial too. Many people dread submitting their VAT Returns under the belief that they’ll end up owing money – but that’s not always the case.

Sometimes you can actually end up receiving money.

The current standard VAT rate in the UK is 20% for goods and services.

For some goods and services for example home energy or some mobility aids, however, there is a reduced rate of 5%. Zero rate also applies for zero-rated goods and services such as books, newspapers and children’s clothes and shoes.

It’s important to remember that some things are entirely exempt from VAT, such as postage stamps or financial and property transactions.

The standard VAT rate increased to 20% on the 4th of January 2011. Before then, it was 17.5%.

It’s also important to know that the amount of VAT a business pays pr claims back from HMRC is usually the difference between the VAT charged by the business to customers and the VAT the business pays on their own purchases.

You can only charge VAT if your business is registered for VAT.

If you’re a business – and you are registered for VAT – then you are required by law to submit a VAT return to HMRC on a monthly, quarterly or annual basis.

If you don’t submit your VAT return, you’ll be liable for a late payment penalty and will, in addition, incur interest until it’s paid.

HMRC don’t mess around when it comes to deadlines! This is why you should stay on top of your financial paperwork all year round (or hire an accountant to help you with VAT record accounting) so it makes life easier when the deadline comes around again.

If you’re self employed? A lot of financial matters may be a little different than if you’re a business but you still need to submit a self-employed VAT return.

If you are self-employed, you’ll particularly benefit from the help of an accountant, as you likely already have enough on your plate to worry about paperwork and deadlines!

Businesses that aren’t VAT registered do not need to submit VAT Returns.

The simple answer is if your overall takings for the previous 12 months exceeds the VAT registration threshold (which is currently £85,000), then legally, you do need to register for VAT.

However, you don’t need to wait until you hit this threshold to register – many businesses or sole traders actually choose to register voluntarily as it can be beneficial to their business.

For example, if you are a small business owner and incur a lot of start-up costs, any VAT you’ve been charged can then be reclaimed. Or, on the other hand, you may sell zero rated items. In this case, VAT wouldn’t be charged on these sales, but you can still reclaim VAT on purchases and expenses.

The process of registering for HMRC is quite straightforward. You just need to register for VAT online via the HMRC website, where, once registered, you can view all deadlines for tax returns, pay your tax returns and more.

Are you looking to submit your VAT return or other VAT services such as submitting an EC Sales List, Reverse Charge Sales List or apply for EU VAT refunds?

It’s easier than you think.

Simply head over to the gov.uk website to sign into your HM Revenue and Customers (HMRC) online account – where you can also view your VAT account and access other online services related to VAT.

You’ll need your VAT number and a Government Gateway user ID and password to log on – both of which you would have received when you registered for VAT.

You can also use your account to:

• Set up a Direct Debit to pay VAT
• View any outstanding payments and outstanding liabilities
• Report changes to your business
• Cancel your VAT registration

Remember: you cannot use your HMRC online account to submit your VAT Return if you’ve already signed up for ‘Making Tax Digital for VAT. In this case, you can instead use accounting software that’s compatible with Making Tax Digital.

Calculating a VAT return is right up there with most financial matters related to business such as sales invoices and working out VAT on purchases: it’s not fun, but it needs to be done!

In fact, the process of working out VAT is actually quite straightforward – but the preparation and keeping track of your transactions is the tricky bit.

To work out VAT, you should:

• Make a note of the VAT paid on your business purchases
• Make a note of the VAT collected on sales
• Add both types of VAT
• Do the maths: take away the amount of VAT paid from the amount of VAT you’ve collected it

If the result is a positive number, you’ll need to pay that amount to HMRC. If it’s negative, you’ll get a refund of that amount.

It’s that simple!

Sole traders or those who are self-employed will be pleased to know that where most things are more complicated when it comes to financing, VAT registration is much the same as any other business!

No matter whether you’re a sole trader, freelancer or one-man-band launching his own business – the VAT threshold is still the same.

Basically, if your annual turnover exceeds more than £85,000, then legally you need to be VAT registered as a sole trader.

You also have the opportunity to register voluntarily at any point.

One thing to note is that if you are a sole trader, you’ll likely also have to abide by the new VAT system: Making Tax Digital. This new system requires you to maintain digital records of your VAT by using software that’s compatible with HMRC systems.

Technically, you can do your VAT return yourself. The process is all done online via HMRC’s free online service. The process of calculating a VAT return isn’t too complicated.

However, going through all your sales transactions or end of year books isn’t too easy!

We always recommend hiring an accountant for VAT to offer a helping hand (or take over) these frustrating financial matters and anything else related to VAT.

The problem with VAT returns and other financial matters is that any small mistake like filling in a form incorrectly, not meeting deadlines or being unable to find all the necessary paperwork can lead to some hefty fines.

Often, it’s not worth the risk.

Calculating a VAT return or doing a VAT return yourself is a simple process if you have all the paperwork to hand – but be warned – other financial tasks are a lot more complicated and time-consuming.

Despite seeming complicated and taking a lot of effort, a VAT return is actually quite a useful way to get a better grip on your finances as a company.

It’s especially useful if the result is that you’re owed money by HMRC!

Most businesses submit four VAT Returns per year – one at the end of every financial quarter.

A VAT return records things like:

• Your total sales and purchases
• The amount of VAT you owe
• The amount of VAT you can reclaim
• What your VAT refund from HMRC is

You usually submit a VAT Return to HM Revenue and Customs every three months – also known as your accounting period.

Whether you’re a small or large business – or even self-employed – you must submit a VAT Return even if you have no VAT to pay or reclaim.

As a general rule, the due date to submit and pay VAT returns is the 7th day of the second month following the reporting period. The reporting period – or accounting period – is every three months.

This means you will submit four VAT Returns per year.

Luckily, you can check your deadlines simply by registering and logging onto your VAT online account on the HMRC website. Here, you’ll helpfully find deadlines for when your VAT Returns are due and when the payment must clear HM Revenue and Customs account.

You must allow time for the payment to reach HMRC’s account.

Keeping an eye on your VAT Return deadlines is really important because if you miss a deadline – or don’t prepare what you need in time – you could be liable to some hefty late payment fees.

There are plenty of websites online that offer VAT Return calculators – but the fact of the matter is, you don’t really need them! You can easily work out and calculate your VAT return on just a normal calculator.

All you need to do is take away the amount of VAT paid on your business purchases from the amount of VAT you’ve collected on sales.

That’s it.

It’s worth noting, however, that this is the easy part.

To get those amounts in the first place, you’ll need to go back through your financial documents to work out how much VAT you’ve paid and collected altogether for the last three months. This process alone can be quite long and time-consuming, especially if you don’t already keep your financial records stored together.

It may be worth hiring a VAT accountant to collect and sort through this information for you – and do all the working out – especially if you’re not great at maths or too busy in other areas of business.

Luckily you can head to the HMRC website for all things VAT related.

Here you can check deadlines for paperwork, submit your VAT Returns and work out what you need to pay (if anything). You can also pay directly online, so long as it’s at least three days before the deadline.

If you need to pay the day of or would like to pay another way, you can:

• Make an online or telephone bank transfer
• Pay via your online bank account
• Pay via CHAPS

You can also set up a direct debit or standing order.

To make an online bank transfer, the details you need are:

Sort code: 08-32-00
Account number: 11963155
Account name: HMRC VAT

You’ll also need your 9-digit VAT registration number to make a payment. This can be found via your VAT online account or on your VAT registration certificate.

Remember: you must account for the time it takes to actually reach HMRC’s bank account.

Are you struggling with your VAT Return or any other VAT related tasks?

HMRC offers some options if this is the case. You can make a VAT enquiry online and replies take up to 15 working days. You can also speak to an advisor online about VAT, Making Tax Digital for VAT or using VAT online services.

You can only call HMRC if your VAT enquiry is urgent – and you cannot use this service to pay your return. What makes it more complicated is that the helpline uses speech recognition software, so you may find yourself going round in circles!

You can also contact HMRC by post for general VAT enquiries.

However, we would always suggest hiring an accountant who has all the knowledge needed to deal with anything related to VAT. Not only can they answer any questions or queries, but you probably won’t even need to ask them questions in the first place – as all those complicated tasks will be out of your hands!

Basically, by becoming VAT registered, you’re listing your business with the government as active in production and sales.

In some ways, it’s another official way to register with the government as being a working company.

This means you are liable to VAT returns (as well as owing VAT), submitting VAT returns and keeping VAT records.

You don’t technically need to register for VAT until your business exceeds the VAT registration threshold (currently £85,000) – in which case you are legally obliged to register – but you are welcome to register voluntarily at any point.

Many small business owners do this regardless, as the benefits of doing this mean they can claim back on things like start-up costs.

You can even reclaim the VAT you’ve paid on certain purchases made before you registered, which is another benefit of becoming VAT registered.

In a lot of ways, it is cheaper to be VAT registered, whether you’re a big business or a sole trader. For example, as long as you are receiving more VAT than you pay out on your purchases, this effectively means you will receive free money!

Of course, there’s a lot more to it than that – and a lot more benefits.

To submit VAT Returns, you need to maintain up to date financial records – and this can only be a good thing for all areas of business. Having a financial overview of your company can easily show you where you could be saving money.

That being said, if, for example, you don’t yet reach the VAT threshold of £85,000 and don’t quite understand VAT, it may be worth avoiding registering for now.

Submitting VAT returns, always keeping on top of your financial records and even working out VAT can seem very overwhelming for small business owners and sole traders.

And if you’re not on top of these things, miss a deadline or make a mistake – you could actually end up being penalized and losing money.

If you don’t yet reach the threshold and you’re able to make a choice about whether or not to register voluntarily, make sure to do your research and make an informed decision.

Or hire an accountant to help you!

Being VAT registered can save you money – but only when done right.

Not many people realise that not all items have value-added tax! It’s always handy to know which items (and services) are VAT exempt.

Clothing for young children is VAT exempt, as are publications such as books, magazines and newspapers. Some medical supplies and equipment are VAT exempt too: prescription medicine, sanitary products, incontinence products and equipment for elders such as wheelchairs and designed motor vehicles.

Similarly, any building work required to ensure disabled access is also VAT exempt.

Charity shop bargains and antiques or works of art (by private residences to public institutions) are further examples.

Admission administered by cultural organisations or charities is exempt too, for example at zoos, galleries and museums.

Any form of gambling avoids VAT and financial products such as loans, credit, insurance premiums and fees and charges associated with investments.

There’s a lot more items and services than you realise – so it’s always worth doing some further research.

VAT exemption refers to either goods or services that are not subject to VAT – i.e where no VAT is paid or charged. If, for example, your business only sells goods and services that are VAT exempt, your business will also be VAT exempt and you will not be able to register as VAT.

If an item is exempt from VAT, it means it is not taxable. It also means such items (r services) are not included in your taxable turnover.

It’s important to remember that exempt items are different from zero-rated supplies. In both cases, VAT is not added to the selling price, but zero-rated goods or services are taxable for VAT at 0%.

Some examples of VAT-exempt goods include children’s clothing, wheelchairs or designed motor vehicles for the elderly and charity shop items.

Services that are VAT exempt include any building work required to ensure disabled access, sporting activities and funeral services.

The formula to calculate VAT is very simple:

Multiply the price/figure by 1. + VAT Percentage

In this case, the VAT rate in the UK is 20%, so the exact formula would be:

Multiply the price/figure by 1. + 20%

So if you’re adding VAT, for example, you’d simply multiply the net amount by 1 + 20%!

Don’t forget that different services and goods sometimes have a different UK VAT rate – it could be either 5% for some goods and services or 0% for zero-rated goods and services.

That being said, there are plenty of free VAT calculators you can use online to help you – as well as experienced accountants if you’re calculating VAT for a variety of different financial tasks.

A lot of people struggle with maths – which is why when it comes to working out VAT or financial matters, many businesses turn to hiring an accountant instead!

In most situations, you can simply use an online calculator to work out most things related to VAT: adding VAT, removing VAT or even calculating your tax return!

It’s worth noting, however, that to do the latter you do need to have access to financial reports too.

To calculate VAT, you simply multiply the amount by 1 and add the VAT percentage – which in this case, would be 20% as this is the VAT rate in the UK.

Here’s an example:

£100 X 1.2 = the total price of £120. You can easily work out that £20 has been added to £100, meaning the VAT in this example is £20.

It’s as simple as that!