Are you ready for the upcoming VAT deadline? The deadline for filing your return is 7th May if your VAT period ended on 31st March. Here are five things to consider before you file.
1. Include the correct information
Before filing and paying your VAT return make sure all the information is correct. Look out for the dates covered by your return: the 7th May deadline is for the first quarter of 2020, which runs from 1st January 2020 to 31st March 2020. This may seem straightforward but the information you need to provide will vary depending on whether you’re using invoice accounting or cash accounting.
If you’re using invoice accounting, you need to include and pay VAT on any invoices raised during this period regardless of whether your client has paid you. Cash accounting means you only pay VAT to HMRC when your customers pay you, so you just need to include invoices which were paid during this period. Find out more in our guide to invoice accounting and cash accounting.
It’s also important to include all the details on your VAT return, so make sure you’ve entered all of your bills and out-of-pocket expenses. If you make a mistake you can correct any errors in the next VAT period, but getting the details right now could save you time in the future.
If this is your first VAT return, HMRC allows newly VAT-registered businesses to reclaim VAT on purchases made pre-registration. You can only make a claim for items that were purchased for the business and you’ll need to keep hold of the invoice or receipt.
2. Reconcile your bank transactions
Bank reconciliation is the process of checking that the balance on your bank statements matches what’s shown in your accounts. A reconciled bank account not only helps you stay on top of your business’s finances, but also means you’re less likely to miss any transactions. If you don’t log all of your transactions HMRC may think you’re under-reporting your sales, which could lead to a tax inspection.
If you’re a FreeAgent user you need to reconcile or ‘explain’ all of your business bank transactions before you file your VAT return. If you navigate to ‘Banking’ you’ll see all your unexplained transactions displayed in red in your business bank accounts, making it easy to quickly identify where you need to take action.
Find out more about how to explain bank transactions in FreeAgent.
If you don’t use FreeAgent it’s still important to be confident that all of your transactions have been correctly reconciled before you file your VAT return, so check with your accountant if you’re in any doubt.
3. Check that the figures look right
You should always check that the figures on your VAT return match what you’d expect to see. It’s likely that you know your business like the back of your hand, so a quick scan might be all that’s needed to reassure you that the numbers are right.
If the figures on your accounts look higher or lower than you expected for the period, it’s worth checking with your accountant. There’s often a simple explanation and getting it right now will save you a headache in the future.
The coronavirus pandemic is currently affecting most businesses, so it’s possible that the numbers on your return may be a little different to what you’d usually expect for the first quarter. There’s more about the implications of the coronavirus crisis for your VAT return below.
4. Make any necessary adjustments
There are certain circumstances where you might need to post an adjustment to your VAT return. For example, if you’re using a car partly for business and partly for personal journeys but you’re reclaiming VAT on all of the fuel you buy, then you’ll need to compensate for that by paying a levy called the ‘fuel scale charge’.
You can add this to your VAT return in FreeAgent by selecting ‘Taxes’ then ‘VAT,’ clicking ‘Edit Details’ on the VAT return you want to amend and putting in your car’s CO2 emissions level. FreeAgent will then automatically calculate and include the correct figure for your car’s engine.
HMRC provides details on other adjustments you can make to your VAT accounting but be sure to check your return with your accountant to make sure it’s accurate.
5. The impact of coronavirus
VAT-registered businesses in the UK who are due to make VAT payments between 20th March and 30th June 2020 have the option to defer VAT payments until 31st March 2021.
You’ll still need to pay the VAT in the future, but HMRC will not charge you interest on the deferred amount. You don’t need to tell HMRC you’re deferring your VAT payment, but you must still file your return on time so that HMRC knows how much it can expect to collect once the deferral period is over.
Because of the coronavirus pandemic, HMRC has also delayed the requirement to implement digital links for Making Tax Digital until 1st April 2021. To learn more about what the coronavirus crisis could mean for your business and to stay up to date with the latest news, take a look at our small business coronavirus hub.
Disclaimer: The content included in this blog post is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this blog post. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.