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How the VAT Return is calculated

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Summary

How your VAT Return calculates in Sage Accounting.

Description

If your business is VAT registered, you must produce a VAT Return for HMRC.

We automatically calculate VAT due depending on your VAT scheme and the rates you choose when entering your transactions. Check the section below for your VAT scheme to see the actual calculations used for each value on the VAT Return.

For more information about how to create a VAT Return, read create a VAT Return.

Resolution

Things to consider

No matter which VAT scheme you use, the date of your transactions determines when they’ll appear on your VAT Return. To avoid errors, always enter transactions with the correct dates.

When you enter a transaction after its VAT period ends, Sage Accounting prompts you to add it to your next VAT Return.

NOTE:

Check your figures on the detailed VAT report before submitting.

▼Standard VAT

If you use the Standard VAT scheme, the VAT Return calculates from the VAT element of:

  • Invoices and credit notes
  • Other payments and other receipts 
  • Journals entered to the relevant VAT ledger accounts

How the VAT Return is calculated

Box 1

The total VAT due this period on sales – This includes the VAT element of:

  • Sales invoices
  • Sales credit notes – Credit notes deduct from the value in this box
  • Money paid into the bank with VAT
  • Journals entered into the 'VAT on Sales ledger' account
  • Any purchases made using Reverse charge VAT
  • You process VAT on imports through postponed accounting
Box 2

Only applicable to goods moved under the Northern Ireland protocol.

For Northern Ireland businesses, this shows the VAT owed on goods and related services bought from EU Member States during the period.
Box 3 The total VAT due – This is the sum of box 1 and 2.
Box 4

The total VAT reclaimed this period on purchases – This includes the VAT element of

  • Purchase invoices
  • Purchase credit notes – Credit notes deduct from the value in this box
  • Money paid out of the bank account that includes VAT
  • Journals entered to the 'VAT on Purchases' ledger account
  • Any purchases made using Reverse charge VAT
  • You process VAT on imports through postponed accounting
Box 5 The net VAT due to HMRC or reclaimable by you – This is the difference between boxes 3 and 4.
Box 6

Total net value of your sales, excluding VAT.
This includes the purchases of services from EU suppliers and suppliers outside of the EU where reverse charge applies.
Box 7 Total net value of purchases, excluding VAT.
Box 8

Only applicable to goods moved under the Northern Ireland protocol.

For Northern Ireland businesses, this shows the total value of sales of goods to VAT registered EU customers, excluding VAT.
Box 9

Only applicable to goods moved under the Northern Ireland protocol.

For Northern Ireland businesses, this shows the total value of purchases of goods from VAT registered EU suppliers, excluding VAT.

Sage Accounting automatically determines the VAT treatment using the customer or supplier's country. VAT number, and whether the invoice covers goods or services.

EU trade under the Northern Ireland protocol only.

Boxes 8 and 9 record sales and purchases for Northern Ireland businesses that trade with EU Member States under the Northern Ireland protocol. Exclude VAT from related costs such as freight and insurance when these form part of the invoice or contract price.

▼VAT Cash Accounting

On the Cash Accounting Scheme:

  • You pay VAT when you receive a payment from a customer
  • You reclaim VAT once you pay for your purchases

The VAT Return calculates from the VAT element of your customer receipts, payments to suppliers, refunds, other payments or receipts that include VAT. It also includes any journals that include VAT. VAT on reverse charge purchase and sales invoices is included.

The VAT amount on outstanding invoices and credit notes is held in a special VAT ledger account until you mark them as paid. When this happens, we move the VAT amount to the 'VAT on Sales' or 'VAT on Purchases' ledger accounts. The VAT rate used on a customer receipt or supplier payment always matches the invoice you're marking as paid.

When you buy or sell goods or services to a VAT-registered customer or supplier outside the UK, the system calculates VAT when it creates the invoice, not when you make the payment. For further information, refer to https://www.gov.uk/HMRC-VAT-Notice-731. 

NOTE:

The VAT Return also includes invoices processed under the reverse charge.

How the VAT Return is calculated

Box 1

The total VAT due this period on sales – This includes the VAT element of

  • Customer receipts
  • Customer payments on account
  • Customer refunds – Refunds deduct from the value in this box
  • Other receipts that include VAT
  • Journals entered to the 'VAT on Sales' ledger account
  • Reverse charge sales invoices

The VAT Return also includes reverse charge VAT on standard-rated or reduced-rate services you buy from an EU supplier.
Box 2

Only applicable to goods moved under the Northern Ireland protocol.

For Northern Ireland businesses, this shows the unpaid VAT due on all goods and related services you acquired in this period from EU Member States.
Box 3 The total VAT due – This is the sum of box 1 and 2.
Box 4

The total VAT reclaimed this period on purchases – This includes the VAT element of:

  • Supplier payments
  • Supplier payments on account
  • Supplier refunds – Refunds deduct from the value in this box
  • Other payments that include VAT
  • Journals entered to the 'VAT on Purchases' ledger account
  • Reverse charge purchase invoices
  • Notional VAT value in box 2 for EU purchases
  • The reverse charge VAT from box 1 for the purchase of standard rated services from an EU supplier
Box 5 The net VAT to pay HMRC or for you to reclaim – This is the difference between boxes 3 and 4.
Box 6

The total value of sales, excluding VAT.

TIP:

This also includes the purchases of services from EU supplier and suppliers outside the EU where reverse charge applies.
Box 7 The total value of purchases, excluding VAT.
Box 8

Only applicable to goods moved under the Northern Ireland protocol.

For Northern Ireland businesses, this shows the total value of sales of goods to VAT registered EU customers, excluding VAT.
Box 9

Only applicable to goods moved under the Northern Ireland protocol.

For Northern Ireland businesses, this shows the total value of purchases of goods from VAT registered EU suppliers, excluding VAT.
The system uses the customer or supplier's country, VAT number, and invoice type to work out the VAT.
▼Flat Rate VAT

We calculate the VAT based on your Flat Rate percentage. This is the percentage you entered when setting up your VAT scheme. You can check in Settings, Business Settings and then Accounting Dates & VAT.

HMRC will define your flat rate percentage and will notify you of any changes.

On this scheme, you can choose either:

  • Invoice based. You pay VAT when you receive invoices similar to the standard VAT scheme
  • Cash-based. You pay VAT when you pay your invoices, similar to the cash accounting scheme

We calculate the VAT as normal at the standard, lower or zero rate. When you calculate your VAT Return, we adjust the VAT due using your flat rate percentage.

How the VAT Return is calculated

Box 1

The total VAT due this period on sales. This includes

  • The turnover value from box 6 multiplied by the flat rate percentage
  • VAT from the sale of capital assets for which you’ve reclaimed VAT outside of the flat rate scheme
  • Reverse charge VAT: This box also includes VAT on standard-rated or reduced-rate services you buy from an EU supplier
Box 2

Only applicable to goods moved under the Northern Ireland protocol.

If your business is in Northern Ireland, show the unpaid VAT due on all goods and related services you acquired in this period from EU Member States.
Box 3 The total VAT due – This is the sum of box 1 and 2.
Box 4

VAT reclaimed this period on purchase of a capital asset outside of the flat rate scheme.

It also includes the notional VAT in box 2 for EU purchases and the reverse charge VAT from box 1 for standard-rated services you buy from an EU supplier.

Domestic purchases that aren’t outside the flat rate scheme won't show here.
Box 5 The net VAT to pay HMRC or for you to reclaim – This is the difference between boxes 3 and 4.
Box 6

This value includes:

  • The turnover value of sales, including VAT – This is the value used in the flat rate percentage calculation and includes sales outside of the EU
  • The net value of the sale of capital assets outside of the flat rate scheme
  • The sale of services to EU customers and supplies outside the scope of VAT
  • The purchases of services from EU suppliers and suppliers outside of the EU where reverse charge applies
Box 7 This value includes:
The net value of the purchase of capital assets outside of the flat rate scheme.
The total value of purchases of goods and services.
Box 8

Only applicable to goods moved under the Northern Ireland protocol.

For Northern Ireland businesses, this shows the total value of sales of goods to VAT registered EU customers, excluding VAT.
Box 9

Only applicable to goods moved under the Northern Ireland protocol.

For Northern Ireland businesses, this shows the total value of purchases of goods from VAT registered EU suppliers, excluding VAT.

 

 

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