Making tax digital: VAT returns

Keeping on top of bookkeeping is helpful when it comes to managing a business' financial health, but for VAT registered companies who have been moved across to ’Making Tax Digital’ it’s now a legal necessity.

Date
23 October 2023
Reading time
Around 3 min

As a consumption tax, it’s important to remember that VAT is calculated on the value of goods and services at each stage of production or distribution. It must then be paid to HMRC. VAT registered companies are only able to claim back the tax they have paid minus what they have collected. It’s impossible to stay on top of VAT returns without maintaining meticulous bookkeeping practices and that’s why we recommend recruiting your own power team of accounting troopers.

Here is what a bookkeeping/accounting superhero team needs to do:

  • Record All Transactions: Keep a comprehensive record of all business transactions

  • Regular Reconciliations: This helps identify any discrepancies and ensures that all transactions are accurately recorded

  • Digital Record keeping: This not only helps with accuracy but also streamlines the VAT return process

  • Timely Recording: Waiting too long can lead to errors and omissions, which could result in inaccuracies in VAT returns

  • VAT Rates and Exemptions: Different products and services attract differing VAT rates; some are zero rated or even exempt

  • Reverse Charge Transactions: In some cases, businesses are required to use the reverse charge mechanism, which can be complicated

  • Cross-border Transactions: International transactions, especially now within the European Union, have very complex, nuanced rules regarding supplies and acquisitions

  • VAT Invoices: VAT invoices must meet all HMRC requirements

  • VAT Return Deadlines: Missing these deadlines leads to penalties and interest charges, so a bookkeeper will work to these key dates

  • Reclaim VAT: VAT-registered businesses must claim back VAT on eligible purchases within certain timescales

  • Store relevant documentation: All documents must be kept for statutory periods in case of audits or queries from HMRC

  • Seek expert advice: If you’ve ever been on hold to HMRC, you’ll know how good it is to have someone to do it for you! With so many rules, accountants and tax advisors often have areas of speciality. This means that sometimes queries will come out of even their remit and they may need to seek expert technical help with complex situations, through tax specialists or HMRC. It’s never a good idea to risk second-guessing the rules

A systematic approach to recording, categorising, and reconciling transactions, coupled with proper documentation will not only help businesses avoid penalties but also provide a clear picture of their financial situation. Modern accounting software is no longer a nice to have, but an essential part of running a business. Seeking professional advice about the best package for each business can streamline the process and give much more peace of mind. Please do get in touch for a chat about your best options.

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