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Once you’re registered for VAT, you have to start keeping track of all the Value Added Tax you’re charging on your sales, or paying when you buy things for your business. You’ll do all of this through your regular VAT returns.
When you submit a VAT return, HMRC will compare the amount of VAT you’ve charged with the amount you’ve paid and then settle up the difference with you. If you’ve paid out more VAT than you’ve collected on your sales, you’ll get the difference back. If you’ve charged more than you’ve paid, you’ll send the difference to HMRC. Either way, your VAT returns can have a big impact on the money flowing through your business, so it’s important to get them right.
Since 2019, the Making Tax Digital rules for VAT have meant that basically everyone has to submit VAT returns online, using what HMRC calls 'functional compatible software'. The way you do this will vary with the software you're using, but the basic information you'll need will include:
The software you use should handle the actual process of submitting your VAT return online.
For most businesses, the deadline for submitting VAT returns online comes around every 3 months. Depending on how you're set up, though, you might be submitting VAT returns monthly or yearly instead. Your accounting period will determine the deadlines for submitting your VAT returns:
For monthly and quarterly accounting periods, the deadline for submitting your return is also the deadline for paying up any VAT you may owe.
For yearly periods, there are monthly or quarterly advance payments throughout the year, then a final payment deadline for 2 months after the accounting period ends.
If you miss the deadline for submitting a VAT return or paying up any VAT you may owe, you can expect to get a 'VAT notice of assessment of tax' from HMRC. You'll also start racking up 'penalty points' even if you don't actually owe any VAT. Once you hit a set number of penalty points determined by your accounting period, HMRC will give you a £200 penalty. Every late submission after that will cost you another £200. You can check how many points you've built up in your online account.
You can check when your VAT returns are due, and keep track of a lot of other important details, with your VAT online account.
If you're a small business using flat rate expenses, here's what you need to know.
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