Why does a Business need VAT returns?

The annual turnover limit for a business registering for VAT is £85,000. Legally, you have to register if your taxable turnover exceeds this amount. However, you can also register voluntarily if your business is under this amount.

If you exceed the £85,000 limit, it is important to register in order to comply with the law. However, VAT returns are not just for big businesses.

Being registered for VAT also presents a positive image of your business – that it is professional and ready to grow. It also prevents other businesses from making a judgment on your annual turnover; if you are not registered it can be assumed that you make less than £85,000.

There are other situations where being VAT registered is highly beneficial. For example, if all of your customers are VAT registered, they will be able to claim the VAT back you charge on your sales invoices. Then, separately, you would be able to claim the VAT back on your purchase invoices which you would not be able to do if you hadn’t registered. The end result is that you are better off by the VAT you’d claimed on all purchase invoices.

What is the process like?

You will have to fill out the return online, which includes your total sales and purchases for that period. The return will need to include the amount of VAT you owe from your sales invoices and the amount of VAT you can reclaim from purchase invoices, which will then result in either a payment or refund due to or from HMRC.

You even have to do this if you haven’t got any VAT to pay or reclaim.  Returns are usually submitted every three months.

From 1 April 2019, you must submit your VAT return online through HMRC compatible software.

Sidaways can advise on which plan will be best suited to you, as there are multiple schemes in place to help businesses use VAT returns to their advantage.

For example, outside of the standard accrual basis, there are:

1. The Flat Rate Scheme – (annual turnover of less than £150,000)

You pay a set percentage of your turnover, but you cannot claim anything back on purchases in most circumstances.

2. Cash Accounting Scheme – (annual turnover of less than £1.35 million)

This is great for small businesses, as you only pay HMRC the VAT on the income you’ve actually received. However, the flip side is that you cannot claim VAT back on any unpaid invoices.

3. Annual Accounting Scheme – (annual turnover of less than £1.35 million)

You can make advance payments throughout the year, then you file one VAT return per year.

How can Sidaways help?

Sidaways ensure your finances are streamlined and are clearly displayed and tracked through software such as Xero. This is helpful in preparing and submitting your returns, as you need to keep records of your outgoings and inputs in order to make the return and claim back any possible VAT.

We can provide invaluable advice. There are so many nuances to VAT returns. For example, there are things you can reclaim VAT on and there are also certain things you cannot claim VAT on, such as entertainment expenses. Furthermore, there are specific rules for claiming back VAT on cars, travel expenses and more.

It can feel like a minefield, and you need everything in order to produce an accurate and compliant VAT return form. It is widely recommended to get the help of an expert, as it can be a complex process. Sidaways provide excellent VAT return services. They will help you get organised and record all of your financial activities, particularly those concerning VAT.