Working out VAT – refund or bill?
Working out VAT is straightforward maths. Keeping track of all your transactions is the trickiest part. Let’s take a look at the process.
VAT is a simple formula
Unless you’re in a flat rate scheme, you’ll work out VAT by comparing the amount you paid on purchases to the amount you collected on sales.
If you get a positive number, you need to pay that amount to HMRC. If it’s a negative number, you’ll get refunded that amount.
How to work out VAT in four steps
1. Make a note of the VAT paid on your business purchases
2. Make a note of the VAT collected on sales
3. Add both types of VAT
4. Run the VAT formula
If it’s a negative number, you’ll get a refund for that amount.
Avoid nasty surprises with smart bookkeeping
Like any business, you’ll aim to sell more than you buy. If you succeed in doing that, you’ll most likely end up with a VAT bill. Run the four-step VAT equation regularly so you can:
work out how big your VAT payment is shaping up to be
transfer cash to a separate bank account to cover the bill
Automate your VAT calculations
You can use online accounting software like Xero to stay on top of VAT. It automatically records VAT collected and paid, and does the maths for you.
Chapter 6: Submitting your VAT return
There’s no need to feel daunted by the VAT filing process. We’ll take you through a few simple and painless ways to file your VAT in the UK.Read next chapter
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