A VAT return is more than just a form; it’s an essential part of VAT accounting that every VAT-registered business in the UK must complete. It shows HMRC how much VAT you’ve collected from your customers (output VAT) and how much VAT you’ve paid on your purchases (input VAT). The difference is the amount of VAT due to HMRC or the refund you can reclaim.
Whether you’re a sole trader, limited company, or part of a larger organisation, understanding how to calculate your VAT return correctly is key to avoiding errors, penalties, and cash flow issues. In this guide, we’ll break down the process step by step and show you how Cloud Co Books can simplify your VAT compliance.
Understand the VAT Basics
Before you start, you need to register for VAT if your taxable turnover exceeds the current VAT threshold. Once registered, you’ll be required to file VAT returns, either quarterly or annually, using Making Tax Digital-compatible software.
There are different VAT rates in the UK:
- Standard rate (20%) applies to most goods and services (VAT at the standard rate).
- Reduced rate (5%) applies to certain goods, such as home energy.
- Zero rate (0%) is still taxable but charged at 0%, such as most food and children’s clothing.
Some transactions are exempt from VAT or outside the scope of VAT entirely.
Gather Your Records
To calculate VAT, you’ll need all relevant VAT invoices, sales records, and purchase receipts for the period covered by the return. This includes:
- VAT you’ve charged customers (output VAT)
- VAT you’ve paid on purchases (input VAT)
- Any VAT on products and services bought for business use
- Adjustments for VAT exceptions or special schemes, such as the Cash Accounting VAT Scheme or Postponed VAT Accounting
Keeping accurate records ensures you can reclaim VAT correctly and avoid HMRC disputes.
Calculate How Much VAT You Owe or Can Reclaim
The formula to calculate how much VAT you need to pay VAT to HMRC or claim back is simple:
Output VAT – Input VAT = VAT to Pay or Reclaim
- If input VAT is greater than output VAT, you can reclaim VAT on your purchases.
- If output VAT is greater, you’ll need to pay the difference to HMRC.
A VAT calculator or automated VAT software can speed up this process and reduce errors.
Fill in Your VAT Return Form
When you fill in your VAT return, you’ll be asked to complete sections like Boxes 3 and 4 of the return, which show VAT due and VAT reclaimable.
You’ll also provide:
- Total VAT collected from customers
- The VAT amount paid on business expenses
- Adjustments for VAT you can claim back
- The VAT bill you owe or the refund you’re due
Submit Your VAT Return to HMRC
You must submit your VAT return through HMRC’s Making Tax Digital for VAT system. The return online is usually due one calendar month and seven days after the end of your VAT period.
Payment methods include online banking, Direct Debit, or card payments. Missing the deadline can result in fines.
Let Cloud Co Books Handle It for You
Calculating VAT correctly takes time and attention to detail. Cloud Co Books offers a complete VAT accounting and submission service to ensure:
- Accurate VAT calculation for every period
- Timely VAT return online submissions to HMRC
- Compliance with Making Tax Digital rules
- Correct handling of VAT exceptions and reclaim claims
- Professional advice on VAT schemes and special circumstances
By outsourcing to Cloud Co Books, you can avoid mistakes, free up your time, and ensure you always file your VAT return accurately and on time.
VAT Calculation Example – How to Work Out a VAT Return
Let’s say your business is VAT registered and you need to calculate your VAT return for the last quarterly accounting period.
Step 1: Work out your Output VAT (VAT you’ve charged customers)
During the quarter, your business sold various taxable goods and services totalling £24,000 excluding VAT, all at the standard VAT rate of 20%.
VAT charged to customers = £24,000 × 20% = £4,800
This £4,800 is your output VAT.
Step 2: Work out your Input VAT (VAT you’ve paid on business purchases)
In the same quarter, you bought stock and other eligible business supplies worth £12,000 excluding VAT, all charged at 20% VAT.
VAT paid on purchases = £12,000 × 20% = £2,400
This £2,400 is your input VAT.
Step 3: Calculate how much VAT you owe or can reclaim
To calculate your VAT return, subtract input VAT from output VAT:
Output VAT (£4,800) – Input VAT (£2,400) = £2,400 VAT due to HMRC
Since your output VAT is higher, you must pay VAT of £2,400 to HMRC when you submit your VAT return.
If you’re looking to get your VAT return right the first time, our blog How to File a VAT Return walks you through the process and shares tips to help you steer clear of common errors.
Final Thoughts
Knowing how to calculate your VAT return is vital for any business that is VAT registered. It ensures you pay VAT to HMRC correctly, reclaim what’s owed, and stay compliant with tax laws. Whether you handle your VAT calculation in-house or let Cloud Co Books manage it, accuracy is essential.
Need help with your VAT returns? Contact Cloud Co Books today and let our experts handle the process from start to finish, so you can focus on running your business.