VAT Computations and Returns
Your Value Added Tax (VAT) returns must be accurate and filed on time to avoid fines. The easiest way to make sure you don’t miss the deadlines is to regularly keep track of the VAT you have charged to your customers and the VAT you have paid.
If you aren’t yet registered for VAT, but your income is approaching the £85,000 annual turnover threshold then you will need to do this very soon. In some cases it can be beneficial for your business to be registered for VAT, even if you haven’t reached the threshold.
Making Tax Digital (MTD), which came into effect on 1 April 2019, means you must file your VAT returns in a format that HMRC accepts,
using ‘compatible software’.
Registering for VAT
Set-up - there are several different VAT schemes. Choosing the right one for your business will depend on its size and the way you work with your customers and suppliers.
Systems – depending on the business systems you already have in place, you might need to check whether the technology you use will meet MTD requirements. If you have previously used separate systems for invoicing and VAT these might need to be combined to avoid duplication and errors.
Registration - Most people register for VAT online and you can ask for your registration to start on a specific date. You can give us permission to do this on your behalf. When your registration is accepted, HMRC will send you a certificate which will also show your VAT reference number. From your VAT registration date, you will need to include the relevant rate of VAT in your invoices.
Preparing your VAT return
Submission – you have one month and seven days to submit a VAT return after the end of each VAT period.
Reclaiming – you can include VAT you have paid on most business purchases and allowable expenses, which is offset against the VAT you have charged.
Payment – your payment must be received by the deadline, so you will need to allow enough time if you are using Direct Debit or BACS, for example.
Flat Rate VAT scheme – this scheme is intended to simplify your VAT returns. You can apply for this scheme if your VAT turnover is £150,000 or less, excluding VAT.
If you have chosen this option, you will pay a fixed rate of VAT to HMRC and keep the difference between this amount and the VAT you charge to your customers
Preparing for a VAT inspection
On average a small to medium sized business will have a VAT inspection every four to 10 years. You will normally receive a letter giving you seven days’ notice. With the right advice, transparency and a good record of compliance, an inspection should not cause you a problem.
Why an investigation takes place - businesses are chosen randomly, based on their compliance history, turnover and trading class. If there are any anomalies in your VAT returns this could increase the likelihood of an inspection.
What the inspectors look for - you will be asked about your business and its activities. Some types of business, such as construction or property investment, are considered to carry a higher risk because different rules apply. If your business involves some retail activities, the inspectors will want to check that you have charged and claimed the right amount of VAT. You will also need to show that you have only claimed VAT on fuel used for business trips.
After an inspection – you will receive a letter confirming any areas for improvement in your VAT record keeping and telling you if any corrections are needed. You will also be told if you must make any additional payments, pay penalties or if you have overpaid.
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Ed Harper - Bathrooms By Harpers Ltd