If you’re new to business, it can be hard to know where to start with VAT. That’s why we’ve prepared this quick guide to what exactly VAT is, how to prepare your VAT return and how to file that VAT Return with ANNA.
What is VAT?
VAT is a consumption tax, which means a business (such as your own) collects the tax on behalf of the government.
Some businesses are VAT registered and some aren’t. If your business exceeds the threshold of £85,000 of annual turnover, it must be VAT registered. If your business doesn’t exceed the threshold but you want to voluntarily register it for VAT anyway, you can.
If your business is VAT registered you’ll encounter VAT quite a lot. For example, you’ll have to add tax (at the applicable VAT rate) to the sale of any taxable goods or services which you provide to customers. You’re then liable to charge VAT on your sales and are also allowed to claim back VAT from the goods and services you buy and use in the furtherance of business (remember that phrase...).
In short, if you’re a VAT-registered business sometimes you’ll be paying VAT and sometimes you’ll be claiming it back.
There are lots of different VAT schemes that are worth knowing about. You can find out more about them in our recent blog post.
What is the furtherance of business anyway?
This basically means that you can claim the VAT back on any purchases you make if they’re used to run your business. These could include purchases of stock or services such as accounting, marketing, travel expenses etc.
This means that when you file a VAT return, it’ll include the sales of goods and services so you can pay the VAT to HMRC. It will also include all the purchases (i.e. business expenses) of goods and services, so HMRC can pay the VAT back to you.
What info do you need to prepare your VAT return?
- A list of all the sales you have made (and invoiced to customers) in the VAT period you’re submitting a VAT return for.
- A list of all your purchases (along with receipts or invoices) you’ve made in the ‘furtherance of business.’
Are you ready to submit your VAT return?
To make sure you’re compliant with HMRC’s VAT rules consider the following steps:
- You need to make sure you are issuing VAT invoices to your customers for the goods or services you sell to them. ANNA has a free tool which creates VAT invoices for your sales and will ensure you’re including the information required by law on VAT invoices.
- You need to keep a copy of all your receipts and purchase invoices for your business expenses so that they can be included in the VAT return - and the VAT can be paid back to you by HMRC. ANNA has a free receipt scanner which snaps and sorts expenses on the go, saving you the time and hassle of finding them later.
- If your turnover exceeds the VAT threshold of £85,000 you’re required to register for Making Tax Digital (the government’s initiative to modernise how we file VAT). If you are under the VAT threshold and are registered for VAT, you can voluntarily register for MTD as well. But by April 2022 it will be compulsory to register for MTD if you are VAT registered – no matter your annual turnover.
MTD requires you to keep all your records digitally and submit your VAT returns using compatible software like ANNA. Happily, not only is ANNA compatible with HMRC, it’s also compliant with MTD requirements as well.
- Make sure you submit your VAT returns on time! You can choose to submit your VAT returns on a monthly or quarterly basis. How regularly you choose to submit your VAT returns will depend on what you feel is best for your business. ANNA will drop you a reminder text when the deadline is near.
When you’ve chosen a tax period for your VAT returns, you’ll have to notify HMRC if you want to change it.
Preparing your VAT return might seem daunting, but if you follow these steps it’s much easier and simpler. ANNA even has a VAT filing tool which will calculate the VAT to declare in each box of your VAT return for you – and it’s completely free. All you have to do is follow the steps and include your sales and purchases.
So get your sales invoices together, keep a copy of your receipts for your business expenses and get your first VAT return filed with no fuss. And if you’re still not sure what to do, ANNA’s 24/7 customer service team is only a message away.