Our tax preparation specialists tell you all about submitting VAT returns to HMRC

At DSR Tax Claims Ltd, we know that submitting your VAT returns accurately and on time can sometimes be a tricky task. That’s why our experts want to help make life as easy as possible for you by sharing our specialist knowledge with you. So, whether you are wanting more information about VAT or need to know about charitable tax relief, our handy guides are here to help. All our information is based on HMRC sources, so you can rest assured that these guides are filled with helpful and accurate information.

What are VAT Returns?

If your business is VAT-registered, you are required to submit a VAT return to HMRC every 3 months (this is known as your accounting period). Even if you have no VAT to pay or reclaim during that accounting period, you still have to submit a VAT return.

Your VAT return will show the following information:

  • Your total sales and purchases
  • How much VAT you can reclaim
  • How much VAT you owe to HMRC
  • If you will have a VAT refund from HMRC and how much that will be

If you want to receive email reminders from HMRC to help you remember to submit a VAT return, you can sign up for these reminders. All you need to do is log into your online VAT account and add an email address by following the ‘VAT messages’ link.

If you cancel your VAT registration, you will be required to submit a final VAT return online. However, if your registration has been cancelled because you have been declared insolvent, HMRC will send you a paper version to complete.

How do you complete a VAT return?

You can complete and send your VAT return online using HMRC’s online service. This will also allow you to view your VAT account.

If you don’t already have an online account, you will need to set one up. To do this, you will need a Government Gateway account and password as well as your VAT number.

From your account, you can set up a Direct Debit to pay your VAT bill, view your VAT payments and liabilities, report any business changes to HMRC and cancel your VAT registration.

The online service is set up to make it as easy as possible for you to complete your VAT return. There is guidance on what to put in each box as well as how to fill in your return if you are on the flat rate VAT scheme.

At present you are expected to include EU sales in your VAT return and complete an EC Sales List.

How do you work out what to claim?

If your business is VAT-registered, it can usually reclaim the VAT it has spent on business supplies and expenses. However, you can only reclaim the VAT on purchases that were for your business – if the purchase also had a personal element, you will need to split the VAT accordingly.

You will be expected to keep records to support any VAT you reclaim and to show that the VAT was actually paid in the first instance.

If you run a charity, you will only have to pay VAT at a reduced rate on some of the goods and services you purchase.

You are not allowed to reclaim the VAT on the following expenses:

  • Purchases where you have used the VAT Flat Rate Scheme (except in certain instances where you have purchased capital assets worth more than £2,000)
  • Entertainment expenses

In addition, there are special rules for reclaiming the VAT on the following business purchases:

  • Staff travel expenses
  • Expenses where the business is partly exempt from VAT
  • Cars (including fuel and repair costs)

What if you need to use estimated figures?

You will need to get permission from HMRC to use estimated figures and you will need to be able to give a good reason why you can’t use actual figures in your VAT return.

If HMRC permit you to use estimated figures, you won’t be penalised for doing so unless you miss a deadline or make a deliberate error.

You will be expected to use the correct figures in the following VAT return.

Can you reclaim the VAT on bad debts?

If you have paid VAT to HMRC but haven’t received the associated payment from a customer, you can reclaim that VAT if you have written the debt off as a ‘bad debt’.

To be able to reclaim the VAT, the following must apply:

  • The debt must be between 6 months and 4 years and 6 months old
  • You must not have charged more than the normal price for the item
  • You can’t have sold the debt on

You can reclaim the VAT on the bad debt by adding it to your Box 4 figure. You will need to keep records about the debt and if it is paid back at a later date, you will need to repay the VAT by adding it to the next VAT return in Box 1.

How do you submit your VAT return?

VAT returns must be submitted online. Only the following reasons will be accepted for non-online submission:

  • You are unable to use online services due to your age, a disability or because of location internet issues (if, for example, you live in a remote area which doesn’t have internet access)
  • You object to using computers for religious reasons
  • Your business is subject to insolvency procedures. If you have a Company Voluntary Agreement or an Individual Voluntary Agreement, you can still submit online if you wish.

If you don’t understand something to do with taxes or VAT, you can get help. HMRC can help with simple queries but you are also able to get help from family and friends as well as professional advisers if HMRC are unable to help. In addition, people on low incomes may be able to access additional help from TaxAid.

To submit your VAT online, you will need a VAT number and an online VAT account. You can either submit using HMRC’s online service or by using commercial accounting software. Most accounting software allows you to submit your VAT return directly to HMRC without having to do it separately using HMRC’s online service.

Make sure you take note of any reference number you receive because this is proof that you have sent your return, should you ever be required to prove it.

If you want to use an accountant or tax agent to submit your tax return, you will need to authorise them to act on your behalf first. You can do this through your online VAT account if you need to.

If you have any difficulties using HMRC’s online VAT service, you can contact the VAT Online Services Helpdesk to get help. They can be contacted on 0300 200 3701 and are available from 8am to 8pm, Monday to Friday. Be aware that they are closed on weekends and bank holidays.

What are the deadlines for VAT returns?

You will be able to check your return and payment deadlines by logging into your VAT online account. This will also tell you when your payment must clear the HMRC account to avoid a late payment penalty.

The deadline is usually 1 calendar month and 7 days after the end of an accounting period but you will need to leave time for the payment to clear.

If you are a member of the VAT Annual Accounting Scheme, your deadlines will be different. This scheme allows you to submit online one VAT return per year. Your VAT taxable turnover must be less than £1.35 million to be eligible to join the scheme. You still have to make payments on account 4 times per year even though you only send an annual VAT return.

You are expected to pay your VAT bill electronically – most businesses will not be allowed to pay by cheque.

If you can’t pay your VAT bill, you need to contact HMRC as soon as possible.

What are the surcharges and penalties?

If you don’t submit a VAT return by the deadline or make full payment for your VAT by the deadline (this means it has to have reached HMRC’s account), HMRC will record a ‘default’.

If you default, HMRC might determine that you should enter a 12-month surcharge period. If you default again during this period, the surcharge period is extended for a further 12 months and you may have to pay extra on top of the VAT you already owe (this is the ‘surcharge’).

If you submit your VAT return late, you won’t have to pay a surcharge as long as you pay your VAT in full. You also won’t pay a surcharge if you don’t owe any VAT or you are owed a VAT repayment.

If you are subject to any surcharges, HMRC will write to inform you of them and what will happen if you default again. 

The surcharge is a percentage of your outstanding VAT on the due date for the accounting period which is in default. It increases each time you default in the surcharge period.

You won’t have to pay a surcharge for your first default.

The surcharges are as follows:

Defaults within 12 months Surcharge (if annual turnover is less than £150,000) Surcharge (if annual turnover is £150,000 or more)
2nd No surcharge 2% (no surcharge if this is less than £400)
3rd 2% (no surcharge if this is less than £400) 5% (no surcharge if this is less than £400)
4th 5% (no surcharge if this is less than £400) 10% or £30, whichever is the greater amount
5th 10% or £30, whichever is the greater amount 15% or £30, whichever is the greater amount
6th or more 15% or £30, whichever is the greater amount 15% or £30, whichever is the greater amount

In addition, you might be charged a penalty. These are as follows:

  • If you send a VAT return which contains a careless or deliberate inaccuracy, you could be penalised for 100% of any tax under-stated or over-claimed.
  • If you submit a paper return (unless you are exempt from online VAT returns), you could receive a penalty of £400
  • If HMRC send you an assessment that is too low and you don’t inform them it is wrong within 30 days, you could receive a penalty of 30% of that assessment.

What is an assessment?

HMRC will send you a ‘VAT notice of assessment of tax’ if you don’t send your VAT return or pay any VAT you are supposed to pay on time. This assessment tells you how much VAT HMRC think you owe.

If you receive one, send your VAT return and any associated VAT payment immediately. If the HMRC assessment is too low, you need to inform them within 30 days or you may be charged a penalty. To inform them, you can either send a VAT return and appropriate payment, or contact them.

If the HMRC assessment is too high, you are not allowed to appeal it. You must send a correct VAT return and corresponding payment.

If you can’t send a VAT return for any reason, contact the VAT helpline on 0300 200 3700. Lines are open from 8am to 8pm, Monday to Friday.

If you can’t pay your VAT bill on time, call the Business Support Payment Service as soon as possible on 0300 200 3835. Lines are open 8am to 8pm, Monday to Friday, and 8am to 4pm at the weekend.

Is interest payable on overpaid or underpaid VAT payments?

If you pay too much VAT due to an HMRC mistake, you can claim interest. Likewise, if you fail to report and pay the correct amount of VAT to HMRC, you may be charged interest.

HMRC only charge or pay simple interest. This means the interest is only payable on the original amount and not on the interest as well.

If you have underpaid VAT:

You will be charged 3% interest if you have reported less VAT than you charge (or reclaim more than you pay), if you pay an assessment which is later discovered to be too low or if you inform HMRC that you have made a mistake on your VAT return. There is a different interest rate for underpaid tax prior to 21st November 2017.

HMRC will inform you how much you owe and how they have worked out the interest. If you don’t pay within 30 days, additional interest is charged on the VAT due from the date of notice. This interest will continue to be charged and added to your VAT bill, up to a maximum of 2 years. You are not allowed to deduct this interest from your taxable profits.

You are not entitled to appeal HMRC’s decision to charge you interest but you can challenge the amount you are charged if you believe it is incorrect.

If you have overpaid VAT:

You can claim 0.5% interest if you have paid too much VAT, you reclaim too little VAT or an HMRC payment was delayed due to a mistake on HMRC’s part.  However, you can’t usually claim interest if the mistake was on your part. This interest is usually paid for the entire period from when the VAT was overpaid until the date the repayment is authorised. If you cause any delay to the payments, HMRC may decide not to pay interest for that time period.

You have to reclaim the interest separately – it isn’t automatically repaid. To do this, you need to write to HMRC with the repayment details and explaining why you are entitled to interest. This must be within 4 years of the repayment authorisation. You write to the address on the VAT correspondence you receive.

There is a different interest rate for tax overpaid before 29th September 2009.

Don’t forget, HMRC consider interest to be taxable income.

Passing on interest to your customers:

If HMRC’s mistake means that your customers have paid too much VAT, you need to repay that VAT plus interest to your customers. If you need to work out how the interest was calculated so you can pass this on to your customers, you need to contact the person at HMRC who dealt with your claim. If you are not able to contact a customer in order to repay them the interest, you need to give the money back to HMRC within 14 days.

How can DSR Tax Claims Ltd help?

We know that working out your VAT returns can be really confusing – there’s so much to consider and that’s before you start dealing with interest and assessments. Our friendly team of tax specialists at DSR Tax Claims Ltd are on hand to help make life easier for you. We’re the experts at identifying your maximum allowable expenses so call us on 0330 122 9972 – we’re the tax experts you can trust.