VAT Return

VAT Return

Making Tax Digital (MTD) Ready and Compliant

Making Tax Digital (“MTD”) for VAT came into force on 1 April 2019 and became mandatory from 1 April 2022. For the vast majority of VAT-registered businesses with a taxable turnover above the VAT threshold (£85,000), it is mandatory to follow the MTD rules by keeping digital records and using software to submit their VAT returns.

Challenge

Value Added Tax (VAT) is the tax payable to HMRC on Sales of vatable Goods & Services provided less any VAT suffered on vatable purchases.
All businesses that exceed the annual VAT turnover threshold (£85,000 for 2022), must register for VAT and charge VAT on its sales. In addition, a Quarterly VAT return which is MTD compliant must be submitted to HMRC along with the VAT payable.

Description

VAT in UK is typically charged at 20% on goods and services sole, however certain goods and services (e.g. Children’s car seats, radiators etc) can have completely different VAT rates.

Businesses (that supply vatable goods or services) can also choose to voluntarily register for VAT. There are various benefits of being registered for VAT, as they can claim VAT suffered on purchases or some businesses can be in a VAT refund position.

VAT Schemes

We provide a full fledged service to help you register for the right VAT scheme with all the required documentation. Your dedicated account manager will discuss with you and assess which VAT scheme is best suited for your business. They will then get you registered for VAT and guide you all the way to raising your VAT invoices. The government has come up with various VAT schemes in order to match the conditions of different types of businesses.

VAT Flat Rate Scheme (FRS)

With this scheme:
  • you pay a fixed rate of VAT to HMRC
  • you keep the difference between what you charge your customers and pay to HMRC
  • you cannot reclaim the VAT on your purchases - except for certain capital assets over £2,000
In Flat Rate VAT Scheme, you charge a standard rate of 20% on your invoices but pay HMRC a lower rate. This amount can vary depending on your profession. The flat rates are set by HMRC and vary depending on the industry sector, from 4% to 14.5%. You may also be eligible for additional 1% discount if it is the first year on FRS Scheme.

Note:  To join the scheme your VAT turnover must be £150,000 or less (excluding VAT) for the 1st Year and not more than £230,000 (including VAT) from 2nd year onward, and you must apply to HMRC.

Standard Rate Scheme

Standard VAT accounting allows you to reclaim VAT that you may have had to pay on your purchases. You will pay or reclaim the net of the VAT that you have charged your customers and the VAT that you have had to pay on your purchases.

Standard method follows the accrual basis of accounting; this means that your VAT calculations will be based on your raised invoice rather than the date the invoice was paid.

This could have a negative cash flow effect on your business since you have to pay VAT over to HMRC for services or goods sold, which you have not yet received the money for. On the contrary, if you have not paid for goods purchased, you can claim the VAT on the invoice received, resulting in a positive impact on your cash flow.

Cash VAT Accounting

In contrast to standard VAT accounting, cash accounting allows you to calculate actual VAT money paid or received than on an invoice basis.

Cash accounting can be beneficial for your cash flow, especially if your customers are slow to pay. It is even more useful if you have bad debts. Using the cash accounting scheme, you do not pay VAT if your customer never pays you.

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