How the VAT Return calculates in Sage Accounting.
Description
If your business is VAT registered, you must produce 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, please see our Create a VAT Return article.
Resolution
Things to consider
No matter which VAT scheme you use, the date of your transactions determines when they will appear on your VAT Return. To avoid errors, always enter transactions with the correct dates.
If you enter a transaction after the VAT period it relates to has ended, when you run your next VAT Return we'll prompt you to include any late transactions on this 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 your:
- Invoices and credit notes
- Other payments and receipts entered through the Banking option
- Journals entered to the relevant VAT ledger accounts
How the VAT Return calculates
| 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
- VAT on imports accounted through postponed accounting
|
| Box 2 | Only applicable to goods moved under the Northern Ireland protocol. For Northern Ireland businesses, this shows the VAT due (but not paid) on all goods and related services you bought 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 - 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
- VAT on imports accounted for 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. |
The VAT treatment is automatically worked out for you based on the customer or supplier’s country, VAT number and whether the invoice is for goods or services.
EU trade under the Northern Ireland protocol only.
Boxes 8 and 9 record sales and purchases for businesses in Northern Ireland that trade with an EU Member State under the Northern Ireland protocol. Related costs such as freight and insurance where these form part of the invoice or contract price should exclude VAT.
▼ VAT Cash Accounting On the Cash Accounting Scheme:
- You pay VAT when you receive 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. The VAT element of reverse charge purchase and sales invoices are also included.
The VAT amount on outstanding invoices and credit notes record to a special VAT holding ledger account until you mark the the invoice or credit note 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.
If you buy or sell goods and services to a VAT registered customer or supplier outside the UK, VAT calculates at the point of the invoice, not at the point of payment. For further information, please refer to https://www.gov.uk/HMRC-VAT-Notice-731.
NOTE: Invoices on reverse charge basis are also included on the VAT Return.
How the VAT Return calculates
| 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
If you’ve purchased standard rated or lower services from an EU supplier, the reverse charge VAT is also included. |
| Box 2 | Only applicable to goods moved under the Northern Ireland protocol. For Northern Ireland businesses, this shows the VAT due (but not paid) 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 and 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 suppliers and suppliers outside the EU whre 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 VAT treatment is automatically worked out for you based on the customer or supplier’s country, VAT number and whether the invoice is for goods or services. ▼ Flat Rate VAT We calculate the VAT based on your Flat Rate percentage. This is 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 calculates
| 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 if you’ve also purchased standard or lower rated services from an EU supplier, the reverse charge VAT is also included in this box
|
| Box 2 | Only applicable to goods moved under the Northern Ireland protocol. If your business is in Northern Ireland, shows the VAT due (but not paid) 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 value in box 2 for EU purchases and 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 | 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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