The VAT Return Flashcards
Describe MTD
Making tax digital requires VAT registered businesses to keep records digitally and file their VAT return using software
Businesses can either use:
- A compatible software package that allows you to keep digital records and submit VAT returns.
- Bridging software to connect non-compatible software (like spreadsheets) to HMRC systems.
Describe Digital Links
If you use more than one software package to keep records and submit VAT returns, you need to link them using DIGITAL LINKS.
Manually transferring data between software programs/applications/products is not acceptable under Making Tax Digital,
- It includes linked cells in spreadsheets.
- HMRC does not consider ‘copy and paste’ a digital link.
Are paper based returned permitted?
Yes, only in exceptional circumstances.
- The paper based form is a VAT 100 form and must be completed in black ink and submitted by the end of the month following the quarter end, together with cleared payment.
- For nil values on the return the word ‘none’ must be written.
Describe the VAT Return process
- VAT is recorded through the books of original entry (sales day book, purchase day book etc).
- Then it’s transferred to the VAT control account, and the amount payable or reclaimable is determined.
- Once this has been done the VAT return can be completed and submitted to HMRC.
- It should be completed and submitted to HMRC, usually on a quarterly basis.
- Some businesses may choose to submit their returns monthly.
- If they are regularly in VAT repayment position (e.g., making zero-rated sales), this may be beneficial for cash flows.
What is in box 1 of the VAT return?
- Total VAT due on all goods/services you supplied in the period covered by the return, OUTPUT VAT:
+ VAT on credit sales from sales day book
+ VAT on cash sales from cash receipts book - VAT on sales credits, from the sales return book.
If required, you need to make the following adjustments:
+ Fuel scale charge (VAT figure)
+ VAT due on import of goods accounted for through postponed VAT accounting
+ VAT due on the import of services where the reverse charge applies.
What is in box 2 of the VAT return?
Can be ignored for this unit
What is in box 3 of the VAT return?
Sum of boxes 1 and 2
What is in box 4 of the VAT return?
- Total amount of deductible VAT charges on business purchases, INPUT VAT,
+ VAT on credit purchases from the purchase day book
+ VAT on cash purchases from the cash payments book
+ VAT on cash purchases from petty cash book - VAT on purchase debit notes, from purchase returns day book
If applicable, you will need to make the following adjustments:
+ VAT on bad debts written off
+ VAT reclaimed on import of goods accounted for through postponed VAT accounting
+ VAT reclaimed on import of services where the reverse charge applies
What is in box 5 of the VAT return?
- Take figures from box 3 and box 4, deduct the smaller from the larger and enter the difference in box 5.
- The difference will be calculated automatically if you are completing the return online.
- If box 3 is bigger than box 5, the difference is the amount you must pay to HMRC and vice versa.
What is in box 6 of the VAT return?
- Total value of all sales and other outputs excluding VAT.
+ Credit sales (including zero-rated, reduced rate, and exempt supplies) - Sales credit notes
+ Cash sales
If applicable:
+ Exports
+ Fuel scale charge net figure
What is in box 7 of the VAT return?
Total value of all purchases and other inputs excluding VAT.
+ Credit purchases (net)
- Purchase debit notes (net)
+ Cash purchases (net)
If applicable:
+ Imports
This box is rounded down to the nearest whole number
What is in box 8 and 9 of the VAT return?
These boxes can be ignored for this unit
As soon a VAT payment is made/received…
This is cleared down by…
- Payment: Dr VAT control account, CR Bank account
- Refund: Dr Bank account, Cr VAT control account
Describe the VAT reconciliation process
Most digital bookkeeping systems will automatically calculate the figures to be included in each box of the VAT return. Still you should perform some checks on these figures such as reconciling the VAT return to the accounting records.
You should be able to:
- Reconcile the VAT balance in box 5 to the balance on the VAT control account
- Reconcile the sales figure in box 6 to the sales figure in the trial balance
- Reconcile the purchase figure in box 7 to the purchases and expenses figure in the trial balance.
Where is the system pulling numbers from?
- When a transaction is entered into the day books, a VAT code will be selected, e.g., standard rated, zero rated, exempt, which will tell the system which boxes the transaction needs to appear in on the VAT return.
- It will also make the necessary postings to the VAT control account if applicable.
When may difference arise (when reconciling VAT?
- Journals posted directly to the VAT control account - sometimes this is necessary e.g., bad debt written off or error correction, so then the VAT return will need to be manually adjusted to match.
- Reports being run on a differnt basis - You need to select correct date range, the TB may include transactions from outside the date range so you would need to adjust the date to match.
- Outstanding receipts/payments - if amount owed to/from HMRC for the previous period is outstanding this will result in a difference between the VAT control account and the balance owed in box 5 of the VAT return.
