How the VAT return calculates

If your business is VAT registered, you must produce a monthly or quarterly VAT Return for HMRC. We automatically calculate VAT due depending on your VAT scheme and the rates you choose when entering your transactions. If you’d like to know more about how each value on the return is calculated, please see the section for your VAT scheme below.

For more information about how to create a VAT Return, please see our Create a VAT Return article.

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 made through the Banking option.
  • Journals posted to the relevant VAT nominal codes.

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 are deducted from the value in this box
  • Bank receipts
  • Journal debits or credits posted to the VAT on sales nominal code
  • 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.

If your business is based 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

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

  • Purchase invoices
  • Purchase credit notes – Credit notes are deducted from the value in this box
  • Bank, cash and visa payments
  • Journal debits and credits posted to the VAT on purchases nominal code
  • Any purchases made using Reverse charge VAT
  • VAT on imports accounted for through postponed accounting
Box 5 The net VAT to be paid to HMRC or to be reclaimed by you – This is the difference between boxes 3 and 4.
Box 6

Total value of 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 value of purchases, excluding VAT.
Box 8

Only applicable to goods moved under the Northern Ireland protocol.

If your business is based in Northern Ireland, 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.

If your business is based in Northern Ireland, 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 are only populated if your business is based in Northern Ireland and you trade goods with an EU Member State under the Northern Ireland protocol. Include related costs such as freight and insurance where these form part of the invoice or contract price. The figures should exclude VAT.

VAT Cash Accounting

When you use the VAT Cash Accounting scheme, you pay VAT on your sales when your customers pay you, and reclaim VAT on your purchases when you have paid your supplier.

The VAT Return calculates from the VAT element of your customer receipts, supplier payments, refunds and any payments on account.

The VAT element on outstanding invoices and credit notes posts to a VAT holding account until paid. Once paid the VAT element posts to the VAT on Sales, or VAT on Purchases ledger accounts.

When you record a payment against an invoice, the VAT rate used for the payment is that of the original invoice. The VAT Return also includes other payments and receipts made through the Banking option and any journals posted to the relevant VAT nominal codes.

If you buy or sell goods and services to a VAT registered customer or supplier outside the UK, VAT is calculated at the point of invoice, not at the point of payment. For further information, please refer to HMRC VAT Notice 731.

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 are deducted from the value in this box
* Bank, cash and visa receipts
* Journal debits or credits posted to the VAT on sales nominal code

If you’ve purchased standard rated or lower 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 based 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 The total VAT reclaimed this period on purchases – This includes the VAT element of:

* Supplier payments
* Supplier payments on account
* Supplier refunds – Refunds are deducted from the value in this box
* Bank, cash and visa payments
* Journal debits and credits posted to the VAT on purchases nominal code

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 be paid to HMRC or to be reclaimed by you – 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 of 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.

If your business is based in Northern Ireland, 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.

If your business is based in Northern Ireland, 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

If you use the Flat Rate VAT scheme, VAT is calculated as a percentage of your annual turnover. The percentage used is the value you entered when setting up your VAT scheme. You can check this in Settings > Financial Settings.

The Flat Rate VAT scheme can be either Invoice based or cash based. If you use either scheme, your day-to-day processing remains unchanged. VAT is calculated at the standard, lower or zero rate as normal. The recalculation at the relevant flat rate percentage is applied when you calculate your VAT Return.

Under the Flat Rate VAT scheme if you sell or purchase an asset for more than £2000 including VAT, and VAT is recoverable, you should record the sale or purchase using the asset VAT rate. This ensures VAT calculates outside of the flat rate scheme at 20% and not at the 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.
* 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 based 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 be paid to HMRC or to be reclaimed by you – 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.

If your business is based in Northern Ireland, 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.

If your business is based in Northern Ireland, shows the total value of purchases of goods from VAT registered EU suppliers, excluding VAT.