Preparing and completing VAT returns, adjustments, submission and payment
VAT accounting
Under accrual (invoice) accounting, output tax arises at the tax point (normally the invoice date) and input tax is claimed when a valid VAT invoice is received. Cash accounting (join up to £1.35m turnover, leave at £1.6m) uses payment and receipt dates. The Flat Rate Scheme (join up to £150,000, leave at £230,000) applies one percentage to gross turnover with no input tax recovered except capital assets over £2,000, and a 1% discount in the first year. Annual accounting (up to £1.35m) gives one return with nine instalments.
The nine boxes
1 output tax on sales; 2 VAT on EU acquisitions; 3 total of boxes 1 and 2; 4 input tax reclaimed; 5 net VAT (3 minus 4); 6 sales excluding VAT, including zero-rated output; 7 purchases and expenses excluding VAT; 8 and 9 EU goods and services.
Traps: exempt sales belong in neither box 6 nor box 7; blocked input tax (business entertainment, most cars) must be left out of box 4; pre-registration input tax on goods still held may be claimed for 4 years and on services for 6 months; partial exemption de minimis applies where input tax is £625 a month or less and no more than half of total input tax.
Submission and payment
Returns and payment are due one month and seven days after the period end. Bad debt relief can be claimed six months after the due date for payment.
Worked example: quarter to 31 March: output tax £4,320 and input tax £2,150 give box 5 of £2,170 payable, due by 7 May.