Once your turnover from self-employment or through your SME reaches or exceeds £85,000 per annum on a rolling 12-month basis ^[1], you will need to register with HMRC for Value Added Tax (VAT). You may also opt to voluntarily register for VAT before this time – for instance, if you believe your income is likely to exceed the threshold in the current year, or you need to claim back VAT from a purchase or business expense.

The standard VAT rate for expenses and purchases is 20%, with VAT returns to HMRC being made quarterly. However, some businesses may qualify for a flat rate scheme of 11% or 16%, and some goods and services are ‘zero rated’, including printed books (not e-books) and children’s clothes, while other products are subject to a lower rate of VAT – e.g. the temporary VAT cut for the hospitality sector between July 2020 and September 2021, reducing the rate to 5%.

As the rules surrounding VAT change quite regularly, we strongly recommend consulting an experienced accountant to make sure you’re paying the right amounts.

VAT Returns With Xero

Compiling and filing a VAT return manually can be time consuming. However, Xero largely automates the process for users, making it simple and straightforward to create and submit accurate VAT returns and obtain full oversight over your tax liabilities and the amounts you can reclaim. Xero will also automatically add VAT to your customer invoices, so you don’t have to calculate it manually for each item.

One of the most important benefits of accounting software for small businesses is the ability to automate your tax returns, simultaneously saving you time and improving the accuracy of your financial accounts.

MTD And VAT

Xero’s Making Tax Digital (MTD) software works for both MTD and non-MTD VAT digital services. The platform’s suite of reporting, invoicing, and tax management tools let you automate a range of significant tasks, allowing business owners to gather information and facilitate their VAT process quickly and without worry. This provides an easier transition to MTD, so you can remain compliant without compromising efficiency or productivity.

Discover The Benefits Of Xero For Your SME

Filing your MTD VAT returns doesn’t need to be complicated or stressful. With powerful and intuitive features covering payroll, customer invoicing, and receipt capture, Xero can help you manage so much more than your VAT returns. To find out more about Xero and the benefits of using the platform alongside a small business accountant, such as David Howard, please contact us today.

[1] This threshold is ring fenced until March 2024 but is subject to change. Please contact us for confirmation if you are unsure.