VAT returns - Everything you need to know about completing a VAT return, submission and payment
VAT returns - Everything you need to know about completing a VAT return, submission and payment
When is the VAT return deadline and when are VAT payments due?
The deadline for submitting VAT returns and making payment is usually one calendar month and seven days after the end of your VAT ‘accounting period’. The accounting period is the period covered by the VAT return and is ordinarily three months in length.
Where businesses fall within the payments on account (‘POA’) regime, the extra seven days is lost, and VAT returns should be submitted one month after the accounting period ends. You should make interim VAT payments on the last working day of months two and three of each VAT return quarter. A balancing payment is then due when the VAT return is submitted.
If you use the annual accounting scheme, your annual VAT return will be due for submission two months after the end of your VAT accounting period. Payments should be made either monthly or quarterly based on the prior year’s return, with a balancing payment (or refund) due with the return.
How to submit a VAT return
All VAT registered businesses are required to submit VAT returns electronically. There are some exceptions to this, in certain circumstances, however prior approval must have been granted by HMRC.
Businesses must sign up for HMRC’s VAT online service before electronic VAT returns can be submitted. Where an agent completes and submits a business’ VAT returns, the agent will need to register for HMRC’s VAT online service.
How to make a VAT payment
Payments should also be made electronically, i.e. with online banking, CHAPS of BACS. HMRC no longer accepts cheque or postal order payments when a business submits an online VAT return.
The cleared funds must be in HMRC’s bank account by the deadline. If the deadline falls on a weekend or bank holiday, your payment must clear HMRC’s bank account on the last working day before it is due.
What is the penalty for a late VAT return?
For VAT return periods that start on or after 1 January 2023, a points-based penalty regime applies where a business fails to submit its VAT return on time, without a reasonable excuse.
Under this penalty regime, a business that fails to submit its return on time is awarded a penalty point. When the number of penalty points reaches a penalty threshold, a financial penalty of £200 is issued.
There are different penalty thresholds depending on whether the business submits its returns monthly, quarterly or annually. Read more about VAT penalties from 1 January 2023.
VAT return boxes explained
VAT Return Box 1: VAT due on sales and other outputs
This box should include the total amount of VAT charged on all goods and services supplied in the return period (‘output VAT’).
VAT due under the reverse charge should be included in Box 1, whether that be for services received from suppliers outside the UK, or work received under the domestic reverse charge (‘DRC’) for construction services. Read more in our domestic reverse charge VAT for construction services article.
If you use Postponed Import VAT accounting (‘PIVA’) you should declare the output tax element here.
VAT should also be included on supplies made outside of your core business activities. This could include:
- The fuel scale charge
- The sale of stock and assets
- Supplies made to staff
- Goods taken out of the business for private use
- Gifts of goods that cost you more than £50 (excluding VAT)
- Self-billed invoices issued by your customer
Where credit notes have been issued, the VAT reimbursed should be deducted in this box.
Box 2: VAT due in the period on acquisitions of goods
Box 2 should only be completed where you acquire goods in Northern Ireland from EU member states. Acquisitions only apply for businesses which are trading under the Windsor Framework (previously the Northern Ireland Protocol).
You should include the VAT due on these acquisitions and related costs from VAT-registered suppliers in EU member states. Related costs include your supplier’s costs in making the supply, such as packing, transport or insurance.
Box 3: total VAT due
This box shows the total output VAT due for the return period and is calculated by adding Boxes 1 and 2 together.
Box 4: VAT reclaimed in the period
In this box you should include the VAT that is recoverable on purchases made in the return period (‘input VAT’).
You may also include the VAT on:
- Reverse charge transactions
- DRC transactions
- Imports (including where PIVA is used)
- The acquisition of goods into Northern Ireland from EU member states (must correspond with the value included in Box 2)
- Claims for bad debt relief
- Self-billed invoices issued by you
Where credit notes have been received, the VAT reimbursed should be deducted in this box.
Input VAT should only be recovered on purchases where you have a valid VAT invoice (or other accepted commercial documentation) to support the claim.
Should your business be partially exempt for VAT purposes, the input VAT you can recover will be restricted under the partial exemption rules. Only the amount of VAT which is recoverable should be included in Box 4.
Box 5: net VAT to pay to HMRC or reclaim from HMRC
To calculate the value to include in this box you should take the figures from Box 3 and Box 4, deduct the smaller figure from the larger one and put the difference in Box 5.
If the amount in Box 3 is more than the figure in Box 4, this amount represents the amount of VAT which needs to be paid to HMRC.
If the amount in Box 3 is less than the figure Box 4, this represents a repayment of VAT which can be reclaimed from HMRC.
Box 6: total value of sales and other outputs
In this box you should enter the total value (exclusive of VAT) of sales and other outputs made during the return period. This includes:
- Zero rated, reduced rated and exempt supplies
- Supplies which are outside the scope of UK VAT
- Exports of goods
- Reverse charge transactions
- The value of sales of goods or services which are subject to the domestic reverse charge
- Supplies to EU member states, if the goods are moved from Northern Ireland (must correspond with the value included in Box 8)
- Claims for bad debt relief
- Deposits received where an invoice has been issued
- Net value of the fuel scale charge
This does not include loans, dividends, gifts of money, insurance claims or money you have personally paid into the business.
Box 7: total value of purchase and other inputs
In this box you should enter the total value (exclusive of VAT) of purchases and other inputs made during the return period. This includes:
- Purchases of goods and services
- Capital assets
- Imports (including where PIVA is used)
- Reverse charge transactions
- Acquisitions of goods you bring into Northern Ireland from EU member states (must correspond with the value entered in Box 9)
This does not include wages and salaries (including tax contributions), loans, dividends, gifts of money, insurance claims or money you have personally taken out of the business.
Box 8: supplies of goods, and related costs, from Northern Ireland to EU member states
This box only has to be completed if you make supplies of goods from Northern Ireland to EU member states. You must include the value of these sales (excluding VAT) and any related costs. This value should correspond with that included in Box 6.
Box 9: acquisition of goods, and related costs, from EU member states to Northern Ireland
This box only has to be completed if you acquire goods in Northern Ireland from EU member states. You must include the value of these acquisitions (excluding VAT) and any related costs. This value should correspond with that included in Box 7.
Can I claim import duty on my VAT return?
Import duty is not recoverable and should not be reported on your VAT return. This should not be confused with import VAT (see below).
How to account for import VAT on your VAT return
There are two ways for import VAT to be included on your VAT return.
Where you are operating PIVA, you must account for import VAT on your VAT return for the accounting period which covers the date you imported the goods.
There should be three entries on the VAT return for import VAT under PIVA. These are as follows:
| Box | What to include (in the period) |
| 1 | The value of VAT due on imports accounted for using PIVA |
| 4 | The value of VAT reclaimed on imports accounted for using PIVA |
| 7 | The total value (excluding VAT) of all imports of goods |
These values should be obtained from your online monthly statement, which can be downloaded using the Government Gateway. If you delayed your import declaration and do not have a statement, estimates can be used.
Where PIVA is not used, import VAT can be recovered in Box 4 of the return, provided you have obtained a C79 import VAT certificate.
Accounting for reverse charge on your VAT return
If you are a supplier and your supplies fall within the reverse charge you must include the total value of the supply in Box 6 only. There is no output VAT to include in Box 1 as this is completed by the customer.
The customer should include four entries on its VAT return, as follows:
| Box | What to include (in the period) |
| 1 | The value of output VAT on the supply |
| 4 | The value of input VAT recoverable on the supply |
| 6 | The total value (excluding VAT) of the supplies |
| 7 | The total value (excluding VAT) of the supplies |
The net effect of these entries will be nil for businesses which are fully taxable. For a partially exempt business, the value included in Box 4 may be restricted and any restricted VAT will be a direct cost.
Claiming VAT on bad debt
As a supplier, if your customer does not pay you for goods or services, you can write off the invoice as a bad debt and claim relief from the associated VAT. To qualify for bad debt relief the following conditions must be met:
- You must have accounted for and paid for the output VAT on the supply
- You must have written the debt off in your VAT accounts and transferred it to a separate bad debt account
- The debt must be older than six months
- The debt must not have been sold on or factored
- The value of the supply must not exceed open market value
- You must submit your claim within four years and six months of the date the payment was due or the date of supply (whichever was later)
To claim bad debt relief, you should include the value of the VAT in Box 4 of the VAT return in which the six months test is met.
Made a mistake on your VAT Return?
Where a mistake has been made on your VAT return you can correct this on the face of the VAT return provided the net value of the error is either:
- £10,000 or less
- Between £10,000 and £50,000 but less than 1% of the total value of your sales (Box 6)
Where the error results in output VAT payable to HMRC this should be included in Box 1. Where the error results in input VAT reclaimable from HMRC this should be included in Box 4.
Where the net value of the error exceeds £50,000, or where it is greater than £10,000 and exceeds 1% of the total value of your sales, it should be corrected by submission of a voluntary disclosure to HMRC using a VAT652 form.
The VAT team at BDO have extensive experience of assisting clients with the submission of voluntary disclosures for error corrections. Using an advisor to help you with this process can often lead to penalties being mitigated.
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