6.2. Return periods. March, June, September, December. April, July, October, January. May, August, November, February

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1 6.1. Introduction Once registered for VAT, every business is required to submit periodic returns to HMRC declaring the amount of tax payable or refund due to them. The VAT return asks for relatively little detail compared to, say, a Corporation Tax return, consisting of only nine boxes for the entry of data. Care is required to ensure that these returns are completed accurately and that they are submitted in good time along with any payment required. There are harsh penalties for mistakes and lateness in either submission or payment Return periods Quarterly VAT periods Most businesses will submit returns covering periods of three months. These are arranged in what are referred to as the VAT staggers, as follows: Stagger Stagger one Stagger two Stagger three Periods ending March, June, September, December April, July, October, January May, August, November, February You can ask the VATman to change the VAT stagger to your advantage. For example, where you have a seasonal trade biased around summer trade, you might benefit from Stagger three so that the VAT you collect on sales in your high season - June/July/August - won t be payable to the VATman until you send in your VAT return for the August quarter, i.e. not until the end of September Annual VAT returns Some businesses opt to use annual accounting, which requires the submission of a return each year under the annual accounting scheme (see Chapter 3) Monthly returns You can ask the VATman to send you returns each month. 77

2 Monthly returns will improve your cash flow where your business s input tax regularly exceeds the output tax, meaning that you ll be entitled to a regular VAT refund. However, the downside of the arrangement is the administrative burden of having to complete monthly forms Security payments Another reason for adopting monthly rather than quarterly returns is to reduce the cost where HMRC requires a security payment from your business. If the VATman suspects that your business is or may soon become insolvent and so unable to pay its debts, including its VAT liability, it can, subject to conditions, ask your company to make a security payment. Trap. If you ve been involved in a failed business, even though it may not have been any fault of yours, the VATman might be nervous that the same thing will happen again. As a result, he has the power to require a security deposit from your current business. This will be based on the amount of VAT which could be lost. For quarterly returns the security is based on six months of VAT liability. If you re required to make a security payment, by opting for monthly returns the amount reduces to four months VAT. You can appeal against the VATman s request for a securtity payment if you believe it s unfair. See Appendix 3 for details of when and how to make an appeal Payments on account The payment on account system is designed to aid government cash flow. In ordinary circumstances a business may receive output tax from its customers up to four months before it has to pay it over to HMRC. This cash flow advantage for the business is a cash flow cost for the Treasury. In order to redress this, companies who are liable to pay a large amount of VAT are required to pay monthly, although quarterly returns usually still apply. 78

3 A business with VAT payments due to HMRC in excess of 2 million per annum is required to pay monthly. This tax due figure includes quarterly VAT payment on returns and also any other payments that are required to be made to HMRC. Note. The 2 million limit includes VAT payable when you import goods and services. It s easy to overlook this, which could mean you miss switching to monthly payments at the right time resulting in penalties What are special accounting periods? Many businesses prefer to run their accounting records to the end of a trading week rather than to a fixed calendar month-end. This can lead to complex adjustments being required if the business is on standard return period dates which do not coincide. If your business operates in this way, perhaps approximating months using a four-week reporting schedule, you can ask for special VAT returns to align with your accounting periods. You ll need to contact HMRC at the beginning of each year detailing your accounting schedule Deadlines All VAT registered businesses are now required to submit returns online and the deadline is the 7th of the month after the month following the period-end. Thus, a return running to March 31 must be filed by May 7. Any VAT due is also payable online and the funds must be cleared in the VATman s account by this deadline Using estimates Where you don t have accurate figures for your VAT return, it s better to submit it showing the best estimates you can make rather than delaying a return and potentially running up penalties and surcharges. Note. Where you intend to use an estimate of a material value, you should contact the VATman for approval first. Permission will not be given on a regular basis but it still represents a useful concession. You can then correct the figures either by adjusting a later return, where the difference is less than 10,000 or, where the adjustment needed is greater than this, notify the VATman by letter or on Form 652 of the reason for and amount of the correction. 79

4 Asking for time to pay Where your business doesn t have sufficient funds to meet its VAT bill, it s possible to agree time to pay with the VATman. Don t leave your request for time to pay until after payment is due. Contact the VATman in advance and you ll stand a much better chance of success VAT return boxes There are only nine boxes requiring data input on the VAT return (and online it calculates two of them for you). Box 1 - output tax. This is the total output tax due to HMRC in the period on supplies made with a tax point within the period. It also includes output tax on any deemed supplies, reverse charge supplies and adjustments. Box 2 - acquisition tax. VAT due on goods purchased from VAT-registered suppliers from other EU states (see Chapter 13). Box 3 - output tax due. The total of the amounts declared in Boxes 1 and 2. Box 4 - input tax. All input tax claimed in the period on purchases and imports. Also, any VAT declared on reverse charge services and in Box 2 can be claimed here, subject to any partial exemption or other blocks. Any input tax adjustments from prior periods will also be included here (subject to the disclosure limits). Box 5 - net tax due or repayable. The difference between Boxes 4 and 5. Where output tax exceeds input tax, the business must make payment to HRMC. Where input tax exceeds output tax, the VATman will pay the tax directly into the business bank account. Box 6 - turnover. The net value of income in the period excluding items that are outside the scope of VAT by virtue of being non-business. Box 7 - expenditure. The net value of expenditure in the period excluding items that are outside the scope of VAT by virtue of being non-business. Box 8 - EC sales of goods. The value of goods sold to EU customers which have been zero-rated under the despatch rules (see Chapter 13). Box 9 - EC purchases of goods. The value of goods purchased from EU suppliers which have been zero-rated under the acquisition rules (see Chapter 13). Download Zone For a VAT Return Checklist, visit You ll find the access code on page 2 of this book. 80

5 6.8. Error correction If a business discovers that it has made a mistake on a VAT return, there are special rules on how to go about correcting it Time limit Errors made within the previous four years can be corrected. Anything prior to that period can be left alone. This can be good news if the errors found were in your favour but bad news when it s the other way around. Note. The four-year period runs from the end of the VAT return period in which the error was made (for output tax) or the due date for submission of the return (for input tax) Monetary limits Small errors can be amended on the current VAT return. Larger errors are to be disclosed separately to HMRC. The limit for error correction on a return is the greater of: 10,000; and 1% of current period Box 6 turnover. The 1% test is capped at 50,000 to stop very large businesses having enormous materiality limits It s the net error which counts Ex a m p l e Helen Harrogate finds that she has missed a month s takings off her 03/11 VAT return. The output tax that should have been declared was 12,000. She also finds that over the past four years she has been incorrectly accounting for output tax on some of the girls clothing sold through the shop. These sales should have been zero-rated. She finds that the output tax overpaid amounts to 4,000. The net error is 8,000 and so she is entitled to adjust the net amount on her current VAT return period. Had she only found the first error, she would have been required to disclose separately. 81