Value Added Tax, or VAT, is sales tax added to the price of goods and services by businesses operating in the United Kingdom, or UK. A business with a turnover of £70,000 or more must register for VAT and file regular returns to Her Majesty's Revenue and Customs, or HMRC, the government department responsible for administering and collecting the tax. Typically, VAT returns are filed quarterly, and businesses with annual sales of less than £70,000 may voluntarily register for VAT. A VAT-registered business can claim back the VAT it pays for goods and services used to operate the business.
Check your cash account records for the VAT period relating to your VAT return. Highlight all purchase items where the purchase price contains a VAT component. You cannot reclaim the VAT on every purchase, so only highlight eligible items. For example, you cannot reclaim VAT back for second-hand goods, or on invoices over six months old that you have not yet paid. Include and highlight items including VAT paid for goods imported from countries outside the European Union, or EU, and items including VAT due for payment, but not yet paid, on goods imported from other countries within the EU.
Add up the VAT component of all the sales you have made during the VAT period relating to the return you are preparing. Add up the VAT component of all the highlighted purchases in your cash accounts relating to purchases made during that period, and this figure is the amount that you can reclaim.
Subtract the value of the VAT paid on purchases from the amount of VAT you have received from sales that you are due to pay to HMRC. The figure that remains is the net amount of VAT you must pay to the revenue, or the amount that the revenue must return to you if the amount of VAT you paid on purchases is greater than the amount of VAT you received from sales.
Use the VAT 100 tax return form if you are filing a paper return, or log into your HMRC account if you are filing an online return. For an online return, click the "Submit your VAT return" button, which will display an online version of the VAT 100 paper return. Enter the total amount of VAT you received from sales in box 1, then in box 2 enter the amount of VAT due but you have not yet paid on goods you bought from other EU countries. Add boxes 1 and 2, then enter the result in box 3.
Enter the total amount of VAT you want to reclaim in box 4. The difference between boxes 3 and 4 on the form represents the amount of VAT you must pay to HMRC, or that HMRC must pay back to you, and you should enter this in box 5. If the amount in box 3 is greater than the amount in box 4, you will have to pay the amount in box 5 to HMRC, but if the amount in box 4 is greater than the amount in box 3, HMRC will pay you this amount.
File the return with HMRC. If you are filing a paper return, you should post the return to HMRC using the prepaid envelope provided, but if you are filing your return online, your return is filed immediately once you have completed the form.
Keep all purchase and sales invoices in date order as you issue or receive them, to save time when you prepare your return.
Do not claim VAT back on purchases of goods not used exclusively for your business. Make sure that all invoices received for purchases are VAT-compliant invoices.
Tips and warnings
- Keep all purchase and sales invoices in date order as you issue or receive them, to save time when you prepare your return.
- Do not claim VAT back on purchases of goods not used exclusively for your business.
- Make sure that all invoices received for purchases are VAT-compliant invoices.
Things you need
- Cash accounting records
- VAT invoices
- VAT 100 return form