Five steps: completing your VAT return

You need to register for VAT if your annual sales top £85,000. With registration comes red-tape and returns. But there is a saving grace. We've reduced everything you need to know into this 'smartbite', so you won't be the dullard at networking events haranguing people for their tax tips.

1. What's the date today?

Registering for VAT means adding a couple of dates to your diary. (We wouldn't think any less of you if you wanted to use coloured pens to make this bit more interesting.)

You need to send off a return every three months, or you face a penalty. HMRC will send you the forms in the post or you can do it online.

You will, in fact, have to do your return online from April 1, 2010, if your turnover is upwards of £100,000 or if you're newly VAT-registered. We'll keep you up to date with other paper-to-online changes after that, but expect them to happen in the not-too-distant future as HMRC wants to make the whole process electronic. RIP, paper returns.

Be aware of which side of the VAT rate change you're on too. The standard rate is 17.5% until January 3, 2011, and 20% from January 4, 2011, onwards.

2. Do your homework

We know curling up in a bed with a VAT guidance booklet probably isn't quite your idea of a relaxing night in, but reading around the subject will guard you against stress-induced heartburn in the long run.

It's worth glancing over HMRC's notes on filling out your return, enticing as they are.

Swot up on the flat rate scheme and annual accounting scheme too, because you could save money, time and red-tape. Annual accounters need to send in only one return a year, and flat raters just use a fixed figure for their VAT payments rather than fiddling about with lots of different items and calculations.

3. Ticking all the right boxes

This next bit is marginally less exciting than John Major explaining how he watched his freshly redecorated living room walls dry off, but it's need-to-know, so make yourself a coffee and stick with it.

Each of the following figures is for the three-month period your VAT return covers. Box 1 is the total amount of VAT you charged on sales, including loans and sales to staff. Put the total VAT on goods you bought from other EU countries in Box 2 (see point 4 of this feature if this doesn't apply) and add together 1 and 2 for your total VAT due in Box 3 (it's calculated automatically online).

Box 4 is total VAT you're paid on all business purchases, including those from countries outside the EU and from warehouses and free zones, minus VAT on credit notes you've received, debit notes you've issued or VAT on unpaid supplier invoices to you more than six months old.

This next bit may sound like an Alice-in-Wonderland riddle but it'll make sense when you see the figures written down. Box 5 is Box 3 minus Box 4 (if Box 4 is less than Box 3), or vice versa (if Box 3 is less than Box 4). If Box 3 is greater than Box 4, you owe HMRC the amount in Box 5. If Box 4 is more than Box 3, HMRC owes you. (We warned you.)

Almost there. Box 6 is your total sales excluding VAT, while Box 7 is total purchases excluding VAT. Boxes 8 and 9 only apply if you've traded with another EU country. 8 is the total value of goods supplied, 9 is the total value of the stuff you bought.

There are little complications and caveats to all these bits, you'll be delighted to hear, so take a look at this bit of the HMRC site to make sure you've covered everything.

4. Don't be negligent about your negatives, nor your non-applicables

HMRC has a thing against blank boxes. You have to enter '0.00' for boxes that don't apply or zero-totals if you're doing things online or write 'NONE' on paper.

Put a minus sign before any negative figures if you're doing it electronically. If you're using a paper return, you actually don't use a minus sign but put the figure in brackets. Curious, we know.

5. Deliver results

If you happen to have accidentally chucked out the ready-addressed envelope HMRC sent you with your paper return, fear not. Post it to HMRC, VAT Controller, VAT Central Unit BX5 5AT. If the postal strikes are by some cruel trick of god still continuing by the time you read this, or you need to use a courier for any other reason, send your return to HMRC, Alexander House, Southend SS99 1AA.

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