What are Vat returns in accounting?

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VAT returns are a way of getting refunds from the government on goods or services provided to customers.

Before discussing more on VAT returns, let’s get to understand VAT.

What is VAT?

VAT (Value-Added Tax) is a consumption/indirect tax on goods and services paid at every stage of the supply chain (manufacturer, wholesaler, and retailer) from initial production to the point of sale or service delivery.

The VAT a user pays depends on the product cost minus the cost of materials already taxed before the finished product.

VAT can be charged on various business areas, including goods or services, commission, staff sales, sale of business assets, and more.

What is a VAT return?

When setting up a business, knowing and understanding the taxes that apply to you and how they may affect your operations is essential.

If your business is registered for VAT filing, a VAT return calculates how much VAT your company has to pay to or reclaim from the government monthly, quarterly, or annually.

After filing for VAT returns, the government will repay you the difference if the amount reclaimable is more than the VAT due on sales.

Simplify VAT submissions to the HMRC

These returns differ from the annual tax returns submitted by small limited company owners, sole traders, and self-employed people, where the tax is related to the profits declared.

How to file VAT returns

For small businesses in the UK, you can file your VAT returns through the HMRC website or use online accounting software, making it much easier and more convenient.

When you use online accounting software, all records of transactions paid or received are captured with their associated VATs. Also, if you sell something to your customers, you should know whether the transaction is categorized as a taxable supply.

If it is, you should charge VAT on your invoices, which are automatically captured on the software.

From April 2022, all VAT-registered businesses in the UK need to use MTD to keep digital records and make VAT submissions to the HMRC.

For businesses in the EU, a taxable business gives the tax authorities information about:

Taxable (taxed/exempt) transactions
Customer VAT (output tax) and Suppliers VAT (input tax)
The amount of VAT payable (or refundable).

Businesses can make returns online in some EU countries – but not in all. However, the national tax authorities must allow you to submit your return online if you want to.

See the 2023 tax deduction checklist.

What information must a VAT return contain?

Sum of all taxable transactions (sales and purchases) at net value
VAT charged on these transactions (includes standard rate VAT and reduced rate VAT) for both sales and purchases
Value of goods with nil VAT based on intra-community supplies, separately showing dispatches and arrivals from other EU countries
Net VAT due

How to calculate VAT returns

Using online accounting software like Akaunting, you can automatically calculate VAT returns. However, to calculate it manually, use the formula below:

VAT collected - VAT paid = VAT refund / VAT payment

You must pay the respective authorities if you get a positive number. You also get a refund of the amount if it’s a negative number.

Tax Return vs. VAT Return

The primary difference between a Tax return and a VAT return is that Tax returns are based on your business’s declared profits within an accounting year. At the same time, VAT returns are charged and recovered on transactions that involve income and expenditure at every stage of the supply chain (manufacturer, wholesaler, and retailer).

VAT Returns are submitted periodically – monthly, quarterly, or annually, while Tax returns are mostly paid annually.

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Frequently Asked Questions (FAQs)

Where are tax returns applicable?

The UK and the EU apply tax returns to registered businesses registered in their territories.

What businesses qualify for Tax returns?

UK VAT-registered businesses with an annual taxable turnover above £85,000 are required to use the MTD app for VAT returns. Companies with an annual taxable turnover below £85,000 will be required to use Making Tax Digital software by 2022.

What are the deadlines for VAT returns?

Deadlines vary based on country.

How often are VAT returns submitted?

Standard frequencies are Monthly, Quarterly, and Annual.

When are vat returns due?

In the UK, the deadline for submitting your return is usually a month and seven days past an accounting period. This is also the deadline for paying HMRC.