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VAT Returns

VAT Returns. Chapter 10. The VAT form. VAT Return = VAT 100 form Tax period = 3 months. Need a return each tax period summarising the transactions. Due by one month after the end of the period. Return required even if a refund is due! Payment must be made with the return.

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VAT Returns

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  1. VAT Returns Chapter 10

  2. The VAT form • VAT Return = VAT 100 form • Tax period = 3 months. Need a return each tax period summarising the transactions. • Due by one month after the end of the period. • Return required even if a refund is due! • Payment must be made with the return. • Payment can be made by cheque or credit transfer.

  3. Online Returns From April 2010 all VAT registered businesses with a turnover of more than £100,000 and all newly registered businesses will be required to render their VAT returns online and pay any VAT due electronically. HMRC VAT information: http://www.hmrc.gov.uk/vat/

  4. VAT and exports: non-EC • Goods exported from UK are normally zero-rated if documentary evidence of export exists • Goods imported will have customs duty paid on them when they enter the country • Goods are subject to standard rate VAT if that would apply if they were supplied in the UK • VAT is calculated on value plus customs duty • VAT is paid at port of entry and goods will be impounded until the tax is paid

  5. VAT and exports: within the EC • Goods sold between organisations which are both from EC states are ‘acquisitions’ not ‘imports’ or ‘exports’ • Procedure differs depending on whether or not the buyer is VAT-registered

  6. Sale to a VAT registered business Buyer pays the VAT to the ‘collecting authority’ (HMRC in the UK): • If seller has the buyer’s VAT number, goods are sold zero-rated to the buyer. • Buyer then pays VAT to HMRC at the appropriate rate

  7. Sale to a non-VAT registered business Seller pays the VAT to the ‘collecting authority’ (HMRC in the UK): • Seller charges VAT at standard rate on sales to the buyer. • Buyer pays the VAT-inclusive price to the seller

  8. Completing the Return • Main source of information for the return is the VAT Account • Needs to show the amount due to or due from HMRC at the end of each tax quarter • A pro-forma VAT Account is given in the VAT Guide (Notice 700) which is the main guide to VAT rules and procedures and explains and interprets VAT regulations.

  9. Other sources • Information on total sales and purchases excluding VAT can be obtained from sales day book and purchases day book totals • Value of supplies to and acquisitions from other EC member states (excluding VAT) are needed for boxes 8 and 9, so accounting records should allow these figures to be easily identified.

  10. Adjustment of previous errors • Net errors made in previous VAT returns can be adjusted for on the VAT return through the VAT Account IF THE AMOUNT IS £2000 MAX • If the net error is over £2000 then the VAT office must be informed immediately either by letter or using Form VAT 652 (known as ‘voluntary disclosure’) • Disclose amount of error, period it occurred, whether input or output tax was involved and whether error is in favour of business or HMRC

  11. Bad Debt Relief • VAT paid to HMRC but never collected from customers who default on trade debts • Supplier can’t issue credit notes to recover VAT on bad debts • Instead the business can make an adjustment through the VAT return, IF: • Output tax was paid on the original supply • 6 months have elapsed between date of VAT return and date of supply • Debt has been written off in the accounts records

  12. Bad Debt Relief (continued) • If debt is repaid later (or part-paid) another adjustment must be made • BEWARE! VAT reclaimable is not 17.5% of the bad debt figure! • Multiply the bad debt figure by 17.5/117.5 to find the original VAT charge: £200 + VAT (17.5%) = £235 (inc £35 VAT) But 17.5% of £235 = £41.12 not £35! £235 x (17.5/117.5) = £35

  13. VAT Penalties • Penalties apply to: • Late registration • Late submission of VAT Return • Late payment of VAT due • Misdeclaration of VAT liability Interest is charged on any VAT due on an assessment from HMRC (max 3 years)

  14. Late Registration Trading in excess of registration limits without informing HMRC incurs a penalty based on tax due since registration should have occurred: 9 months or less since registration due – penalty of 5% of tax Over 9 months but less than 18 months – 10% penalty Over 18 months – penalty of 15% of tax due Minimum £50 penalty, though trader may attempt to plead a reasonable excuse for not registering on time.

  15. Default surcharge • HMRC issues a ‘default liability notice’ when default occurs (return submitted late or payment made late) • Notice identifies a surcharge period which runs from date of notice till anniversary of end of period for which taxpayer is in default • If a second default occurs, period is extended until anniversary of end of period to which the new default relates

  16. Penalties for payments in default • VAT paid late in surcharge period incurs a penalty (£30 min), calculated thus: • Surcharge of 2% of outstanding VAT where late payment involves the first default • Surcharge of 5% with the 2nd default • Surcharge of 10% with the 3rd default • Surcharge of 15% with 4th or above default

  17. Misdeclaration • A penalty of 15% of the lost tax is chargeable if a trader understates the tax liability • Net errors of up to £2000 can be rectified on the VAT 100 Return

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