Vat Accounting: Definition, Overview, & Examples

To keep track of all purchases and transactions, the most common technique is to keep a VAT logbook. Alternatively, you can use accounting software to automatically record VAT data. In order to fully understand what vat accounting is, this article will explain that as well as the cash postponed accounting.

Vat Accounting

Standard VAT Accounting is a way of reporting VAT in which VAT is recorded and paid in accordance with the date of the invoices issued. Businesses are required to submit a VAT return four times a year under VAT Standard Accounting. You must pay any VAT you owe on a quarterly basis. Similarly, you will be reimbursed quarterly for any VAT you owe.

For example, comparing your costs and sales to determine the amount of VAT that should be paid or reimbursed is how the amount of VAT that you owe is calculated. Taxes must be paid if your sales amount exceeds your costs. HMRC will reimburse you for the difference if your costs exceed your sales.

Financial activities are reported as they occur, regardless of when a payment is made, in accordance with accrual accounting rules of the Standard VAT Accounting Scheme. The date on which a VAT invoice is issued is considered the date on which a financial activity occurs under the Standard VAT Accounting Scheme. When you raise an invoice for a customer, and when you receive an invoice from a supplier, you report income and expenses, respectively.

A tax return using this method will be calculated according to the quarter in which the invoice was received or raised, regardless of whether the payment was made in the same quarter or in a different one.

Alternatives to the Standard VAT Accounting Scheme

The standard VAT Accounting Scheme must be used if your company’s annual revenue exceeds £1,350,000. Smaller businesses, on the other hand, have a variety of options for VAT accounting, including: 

1. Cash Accounting VAT Scheme

According to the cash accounting concept, this scheme takes into consideration the date payments are made, rather than an invoice being issued. Small enterprises, which rarely use credit and frequently receive late payments, typically make use of this method. 

2. Flat Rate VAT Scheme

As part of the Flat Rate VAT Scheme, businesses with a turnover of less than £150,000 can pay HMRC a fixed VAT rate before passing on the rest of the VAT charged to customers. 

3. Annual Accounting VAT Scheme

While the Standard VAT Accounting Scheme requires businesses to file quarterly reports, the Annual Scheme allows firms to pay their VAT bill in advance and submit a single VAT return each year, instead.

Vat Cash Accounting

Businesses can account for and pay VAT based on the cash they receive rather than invoices they issue or receive when using cash accounting.

HM Revenue and Customs (HMRC) typically collect VAT on the difference between your sales and purchase invoices. This information must be reported to HMRC, regardless of whether or not the bills have been paid.

However, you can use the Cash Accounting Scheme to have your consumers pay and reclaim the VAT from your suppliers when you pay them back.

To use VAT Cash Accounting, the following are the advantages.

• It is not until the business receives that it is subject to payment of the company’s sales bills If customers pay, if you don’t act quickly, you’ll lose the advantage. But despite this, Gains could be substantial in the long run.
• In the event that a debtor has defaulted on their payments, they are entitled to automatic bad debt relief. Payment has been made; hence, there is no output tax to pay.
• For the vast majority of companies, thinking in terms of money is more natural in and out of their business than being invoiced by their amounts.

The following are some of the disadvantages of VAT Cash accounting:

• After the payment of the input tax, there is no return on investment from the vendors you buy from.
• There will be no net savings from this plan companies 

Accounting For Vat 

This is information about how to pay and file your VAT return, special schemes, and how to transfer your business relief. The provision of goods and services results in the imposition of VAT.

VAT is due on the date the supply is made or the date any payment in advance is received for the delivery if you are not required to submit an invoice for the supply. In addition, the VAT rate is the rate in effect at the time of the supply or receipt of an advance payment. Last but not least, if you’re obligated to produce an invoice, VAT is due when you either do so or if you don’t when you were supposed to have done so.

Exceptions to VAT

A few exceptions to VAT are listed here:

• On intra-Community acquisitions, VAT is usually due on the date of the invoice. Nevertheless, VAT must be paid no later than the fifteenth (15th) day of the next month after the month in which the goods arrive.
• Purchases of new motor vehicles made within the EU by anyone other than those eligible for VAT deductions are subject to VAT. In most cases, it is due at the time of registering a vehicle (VRT). The 15th day of the month following the ICA is the due date for VAT if there is no VRT. 
• Except for those who are eligible for a VAT deduction, ICAs of new aircraft and watercraft are subject to VAT. The due date is three days after arrival in California. The appropriate Customs and Excise Collector must receive the VAT.
• Goods imported from nations outside of the European Union are subject to VAT when they enter the country.
• ICA’s of excisable goods are subject to VAT based on the date excise duty is due. Alcohol products have their own set of rules and regulations.

When VAT becomes payable

It is important to report and pay your Value-Added Tax (VAT) by the 19th day of the month after the end of each taxable period. True and correct information should be sent to the Collector General through the Revenue Online Service. This should be a true and correct tax return (ROS). 

It has been extended to the 23rd day of the month so that ROS filers can file their VAT returns by that date instead of the 19th day of the month. You may be charged interest and penalties if you don’t file or pay your VAT on time.

What Are the Taxable Periods for VAT?

To be taxed, you have to be in business for two months (bi-monthly), beginning on the first day of each month: January; March; May; July; September; and November. However, the Collector-General can allow the following tax periods:

• If you’re always paying back the money, you’ll have to pay each month. 
• If you pay the same amount each month by direct debit, you will get a yearly return. 
• Also, if your annual VAT bill is between €3,001 and €14,400, you’ll have to make four monthly returns. 
• It’s possible to get six-monthly refunds if your annual debt is less than €3,000.

Repayment of VAT

If your Value-Added Tax (VAT) return shows that you owe money, you must set up a way to have that money deposited into a bank account. If you don’t pay your taxes on time, the Collector-General may keep some of your money back. You should make sure that all of your taxes have been paid. If you don’t, repayments could be used to pay off debts you still owe.

Postponed Vat Accounting

Postponed VAT accounting is a way for businesses that are VAT-registered in the UK to figure out how to pay for import VAT after the Brexit vote. On their VAT Return, businesses can write down the VAT that they pay instead of paying it right away when they bring goods into the UK.

How Does Postponed VAT Accounting Work?

The UK government came up with the postponed VAT accounting scheme to help businesses avoid having a negative effect on their cash flow by delaying the payment of VAT by a few weeks.

Who Can Postpone VAT?

As a business in the UK, you must be able to use the postponed VAT accounting scheme. You must also be able to bring goods that are used for business purposes into the UK.

It’s a choice, so you can pay the VAT right away if you want to. You also don’t have to get permission to put off paying the VAT. If you are VAT registered, you can start using this system right away if you want to. If there was not a postponed VAT scheme, commercial goods worth more than £135 would have to be held at customs until the VAT was paid. This would happen without the scheme. Businesses can now put the import VAT on their quarterly VAT Return instead of paying it right away. This way, they can put it off for a while.

Postponed VAT on Your Customs Declaration

In order for you to use the postponed VAT accounting scheme; you will need to write this down on your customs form. Because customs declarations can be hard to understand, most businesses hire a transporter or customs expert to do them. There are a few fields on the customs declaration that must be filled out if you want to put off paying VAT:

• Your “GB” or “XI” (Northern Ireland) EORI number
• Your British VAT number (VRN)
• Box 47e (the method of payment) says that you want to postpone the VAT payment. You can use the code “G” to do this.

If you make a customs declaration that isn’t correct or doesn’t include the above information; you could face delays or penalties. At least 6 years should pass before you need to keep records of your customs or VAT declarations.

Postponed VAT on Your VAT Return

If you haven’t paid VAT on your imports, you’ll have to write down the VAT on your VAT Return. You can get your VAT statement from the CDS customs system, which includes the deferred VAT payments from a certain period. You can also print it out. Your statement will show how much tax you owe, and you can put that information in the boxes on your VAT Return:

• Box 1: Include the VAT due from postponed VAT accounting
• 4th box: Include the VAT reclaimed on imports from the postponed VAT scheme
• 7th box: These include the ex-VAT value of imported goods

For some imports, you may choose not to use the postponed VAT scheme. If this is your choice, you will only have to fill in boxes 4 and 7. Also, make sure that you record the postponed VAT correctly on your VAT Return; so you don’t get hit with a fine or make a mistake. It’s important to get the most up-to-date information about how things work; from the UK Government website because things can change quickly.

Keeping Track of Your Postponed VAT

Invoicing and accounting software can help you keep track of everything; that has to do with the money your business makes. When you use some software, like Debitoor, you can even connect your account to HMRC and send your VAT Return in just a few clicks.

Vat Accounting FAQs