If your business is VAT registered, you must submit regular VAT Returns to
We’ve gathered together everything you need to help you to make sure that your settings and the transactions you post are correct so that you can submit your VAT returns with confidence.
Set up your VAT schemes
You select your VAT Scheme when you sign up and enter your basic company information. You should do this before you enter any transactions.
The following VAT Schemes are available:
This is the default scheme you’re assigned to unless you state otherwise. On this scheme, you reclaim VAT at the point you receive an invoice from your supplier and pay it when you invoice your customers.
Using the Cash Accounting Scheme, you pay VAT when your customer pays you, but you also need to consider that you can’t reclaim VAT on your purchases until you have paid for them.
You can use this scheme if your estimated VAT taxable turnover is not more than £1.35m.
The advantages of this scheme are:
- It’s good for cash flow, especially if your customers are slow to pay.
- It’s useful if you have bad debts.
- You don’t pay the VAT if your customer never pays you.
Flat rate scheme
This designed to help small businesses reduce the amount of time they spend accounting for VAT. Using this scheme, you enter transactions as normal, using the normal VAT rates, but when you create your VAT return, VAT is calculated based on your flat rate percentage. Instead, you simply pay a flat rate percentage of your turnover as VAT.
The Flat Rate VAT Scheme can be either invoice based or cash based. You can apply to HMRC to use this scheme if your VAT taxable turnover excluding VAT, is less than £150,000.
There’s a range of flat rate percentages; the one you use depends on your trade sector. HMRC will advise you of the rate applicable to your business when you register.
If your company isn't VAT registered, select Not Registered.
Check your VAT settings
To check or enter the following VAT settings, go to Settings, and then click Accounting Dates & VAT:
- VAT scheme - check you have chosen the correct scheme. If your VAT scheme is flat rate cash or invoice based, you should also enter the flat rate percentage.
- Submission Frequency - How often you submit a VAT Return to HMRC. Choose from monthly, quarterly or annually depending on your registration with HMRC.
- VAT Number - Your VAT registration number.
- HMRC user ID - The ID given to you when you register with HMRC to submit your forms online. Enter this here to submit returns directly from Sage Accounting. As part of the VAT registration process, a VAT online account or Government Gateway account is created. If you haven’t already registered, please visit GOV.UK and register your details.
Change your VAT scheme
There may be a time when you need to change VAT schemes, for example, because you’ve reached a turnover threshold or because a different scheme would be more beneficial to your business.
Which VAT rates to use
Depending on what you buy or sell, there are several different VAT rates which might apply.
To keep things simple, when you enter a transaction there are five VAT rates to choose from. You don’t need to worry about maintaining the rates we do this for you. Simply choose the appropriate VAT rate for your transaction:
- Standard – for standard rated transactions. (Currently 20%)
- Lower Rate – for lower rated transactions. (Currently 5%)
- Zero Rated – for zero-rated transactions – (Currently 0%)
- Exempt – for transactions exempt from VAT, the net amount still appears on your VAT Return.
- No VAT – for transactions not involving VAT, these don’t appear on your VAT Return.
To help you choose the correct VAT rates when you record your sales and purchases, check out our VAT rate guide.
Trading outside the UK
If you buy and sell goods and services to customers and suppliers outside the UK, VAT may be charge differently depending on what you are buying or selling, and whether your customer or supplier is registered for tax.
If you sell goods and services to customers outside the UK, you must enter an valid VAT number on their contact record. When entering transactions, choose whether each line on the invoice is for goods or services and we'll apply the VAT correctly. For more information see VAT on overseas sales
If you purchase goods from a country outside the UK, you may need to pay import VAT and duty. This usually applies if the goods you purchased are subject to VAT in this country. How the VAT is applied to your invoices depends on how you want deal with the import VAT and duty. For more information see Import VAT and duty
To improve business cash flow, you can choose use postponed accounting to account for the VAT on these imports. See Postponed accounting for Great Britain businesses
Sometimes HMRC may impose a VAT surcharge. For example, if you don’t send the VAT Return and the payment due by the due date or if the VAT return is incomplete or incorrect. In these cases, HMRC has the power to impose a fine or a recalculation of the payment required. This is known as a VAT surcharge.
The VAT Return
Create and submit a VAT Return
You need to create and submit a return to HMRC once a month, quarterly or annually.
We automatically calculate the VAT due depending on your VAT scheme and the rates you choose when entering your transactions. You can find out more about how each value on the return calculates.
When you make online submissions to HMRC, if the submission fails you may receive an error.
Record VAT payments and refunds
Once you’ve successfully created and submitted your VAT Return, to clear your VAT liability you need to record the payment of VAT to HMRC or, if applicable, the amount of VAT you’ve reclaimed.