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VAT Returns Guide


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Introduction

With QuickFile you can easily manage your VAT returns whether you are on cash accounting or accrual accounting. We also support flat rate VAT for those businesses on the flat rate scheme. VAT returns are calculated for you based on the information you enter into the QuickFile software.

When you have created a new VAT return your have the option to submit online via the HMRC gateway or you can simply take the figures from the VAT return preview and manually submit them directly with HMRC.

Getting started

The first step in QuickFile is to correctly configure your VAT settings. You can switch on VAT accounting from the company details page inside the Account Settings area.

You will see a green button that will take you to the detailed VAT Settings area. Here you can enter your VAT schedule, accounting method and online filing credentials (if applicable). Once you have saved your VAT Settings you can start inputting your sales and purchases.

VAT accounting methods

There are two types of accounting methods for VAT, cash accounting and accrual accounting. HMRC also offer a flat rate scheme for qualifying businesses.

Cash accounting

VAT is considered at the point upon which you receive payment on a sales invoice and when you make payment on a purchase invoice. The majority of small businesses use the cash accounting method as it allows them to more effectively handle their cashflow. If an invoice is partially paid under cash accounting then VAT is applicable only as a pro-rata of the amount paid.

Example:
If we raise an invoice for GBP 120 inclusive of 20% VAT, if the customer pays GBP 60 then we are liable to pay GBP 10 VAT to HMRC as this works out as 20% of GBP 60.

Accrual accounting

Often adopted by larger companies, accrual accounting takes the VAT liability to be created at the point the sales or purchase invoice is raised. Unlike cash accounting VAT is paid or reclaimed irrespective of whether a payment has been made or received.

Flat rate scheme

The Flat Rate scheme was setup to simplify VAT accounting for small businesses. Under the flat rate scheme you are not required to pay the full standard VAT rate on your sales, instead you pay a smaller percentage (as agreed by HMRC) on the basis you will not be claiming any VAT from your purchases.

A full explanation for Flat Rate VAT can be found here.

Filing your first VAT Return on QuickFile.

When filing your first VAT return in QuickFile you will need to pay particular attention to the following points:

VAT is only calculated on invoices and payments you have entered into the software, it will not consider opening balances that you have manually imported. You will therefore need to enter all invoices and payments for the period you wish to file. You should also ensure that all bank transactions are tagged for the given period before submitting your return.

Invoices and purchases will be automatically imported into the first VAT return even if they were entered outside of the period you are filing. You can override this by manually setting a ‘Start Date’ in the VAT Settings area. If you are filing your first return for 1st January to 31st March then setting the start date to 1st January will ensure no earlier items get pulled forward into the return.

If you are on the flat rate scheme you should ensure that this setting is flagged before entering your purchases, this will eliminate the possibility of inadvertently reclaiming VAT that you do not qualify for.

When you are ready to file your return simply navigate to the VAT management area. You can find this under the reports menu, accessible from the Dashboard menu. Click on the button ‘Create New Return’.

Previewing your VAT Return

In the VAT return preview screen you have the option to dynamically change the ‘to’ and ‘from’ dates and QuickFile will recalculate the totals. If you want to see a breakdown of the items that make up the totals on your VAT return then you can download the calculations, these are delivered in CSV format and can be previewed in Excel or a compatible spreadsheet program.

When you are ready to submit you can click the Submit button to save the details. When you submit a VAT return all related items including payments, invoices, purchases etc will be locked down, you will no longer be able to edit or delete these items. If you have previously configured QuickFile to electronically deliver your VAT return to HMRC this will happen without you needing to do anything further. When HMRC have received and accepted the VAT Return you will be notified. If you have not setup online filing then you will need to take the figures in the return and manually submit them to HMRC through your government gateway account.

Please note: It is important that you check all the VAT calculations in the backing report before you submit your VAT return. Mistakes on the VAT return are not easy to rectify and extra care should be taken when filing your return.

VAT adjustments

When you preview your VAT return you will see an option to enter adjustments into each box, just click on the adjacent red arrow. We wouldn’t normally recommend that you use this unless of course you have a good reason and your adjustments are well documented.

Before entering any adjustments, we would recommend producing a schedule of all the entries that make up the adjustments; this will provide backing information for both HMRC and yourself. You can then upload the document onto the QuickFile Document Manager for safe keeping. To assist, you may want to use the backing schedule produced from QuickFile as a template by selecting ‘Download Calculations’.

HMRC electronic filing

With QuickFile you can have your VAT returns sent directly to HMRC through the online filing gateway. All you need to do is enter your online filing credentials into the VAT Settings area.

Please note: Filing the return online with HMRC does not automatically handle the payment of any VAT liability. Please ensure you pay any VAT due or arrange a Direct Debit to be setup with HMRC.

VAT on EC sales and acquisitions

QuickFile has a comprehensive set of tools for handling sales and purchases made within other European Community (EC) member states. EC sales and acquisitions need to be reported separately on the VAT Return. This means that when you enter such items they will need to be distinguished.

Here’s how you enter a simple EC Purchase (An item you have purchased from a VAT registered EC Supplier)…

When you enter or modify a supplier, you will see an option to declare that this supplier is VAT registered in another EC member country. With the above option selected you can now proceed to enter the purchase. On the purchase entry screen, once you select the EC registered supplier, you will see a checkbox to exempt the VAT. You will need to tick this box.

When entering the items for your EC purchase, if the VAT is being exempted you must enter the VAT rate that would have been charged. The VAT will then be adjusted out in the footer totals.

When you file your next VAT return the total value of all EC acquisitions will appear on box 9. These will be distinct from your general purchases in box 7.

VAT on prepayments

A prepayment is when you receive or make a payment before an invoice is raised. These are sometimes referred to as payments on account. In accordance with HMRC rules, such prepayments are subject to VAT. If you have entered a prepayment for a VAT period that has yet to be allocated to an invoice, then QuickFile will include this on the VAT Return and attribute VAT based on the percentage of VAT you declared when originally entering the prepayment.
You should only enter prepayments with zero VAT if the payment will eventually be allocated to an invoice that will be non-vatable.

VAT inclusive invoicing

When entering a sales invoice in QuickFile you will typically enter the unit cost NET of any VAT, this is then multiplied by the quantity to arrive at a NET line total. If you prefer you can check a box on the new invoice screen to enter the line totals inclusive of VAT, this is useful if your invoicing is mostly B2C and you need to get to a rounded VAT inclusive figure, without any trial and error or the need to pull out a calculator.

Rolling back a VAT Return

In some cases it may be necessary to roll back a VAT Return. You should only do this if you have not yet sent the return to HMRC, or the return was rejected and is maked with the status “ERROR”. If you have successfully sent the return to HMRC then you should adjust out any errors in the next VAT return.

VAT Returns can only be rolled back in chronological sequence, so you must roll back Q2 2015 return before rolling back Q1 2015 return. To roll back a return, preview the return and click the rollback button below the preview. All transactions will be unlocked and the journals will be deleted.

Auto import mechanism for pre-dated entries

If you file a VAT return for a given period and then enter additional invoices or payments for that return later, QuickFile has a mechanism to bring these items forward into the next VAT return. This ensure that all items are accounted for irrespective of when they were entered into the software.

This auto import mechanism can only be overridden by entering a VAT Start Date in the VAT Settings area. Nothing before this date can be pulled forward.

VAT procedure versions

When changes are made to the underlying algorithms used to calculate VAT, in order to allow for such changes to be made in a controlled fashion we release the new logic under differing versions. All new accounts will assume the latest version of the VAT procedures and will not be able to downgrade, existing accounts can choose to manually upgrade from the VAT Settings area.

Below is a summary of the VAT procedure versions currently available with a brief explanation of the changes implemented.

Version 1.0: Original VAT procedures up to 7th May 2016
Version 2.0: Implemented on 7th May 2016 to ensure all cash accounting box 8 (EC Sales) totals are calculated on an accrual basis. The associated figures on the ESCL are also calculated on an accrual basis with version 2.0 procedures.


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