For many businesses, reporting VAT (Value Added Tax) can be a time-consuming and stressful process. The deadline for submitting your return online is usually one calendar month and 7 days after the end of an accounting period. This is also the deadline for paying HMRC. Many businesses choose to leave reporting VAT to the very last minute, often leaving it off until close to the deadline. What if there was a way however to reduce the burden whilst also benefitting the efficiency and cashflow of a business?
Value Added Tax (VAT) is a significant aspect of financial management for businesses in the UK. While VAT is a consumption tax, businesses can often find themselves paying more VAT on purchases and expenses than they receive from sales. In such cases, VAT refunds can provide a much-needed boost to a company’s cash flow.
We look at the process of VAT refunds, whilst also analysing the benefits and considerations of monthly reporting in VAT and whether it’s worth it…
Understanding VAT Refunds
A VAT refunds occur when the amount of VAT paid on purchases and expenses exceeds the VAT collected from sales. Businesses can claim a refund from HMRC if they have a VAT credit balance at the end of their reporting period. VAT refunds are particularly relevant for businesses that are either starting out or experiencing a period of significant investment or expansion.
The standard method of reporting VAT in the UK is quarterly. However, businesses can also opt for monthly VAT reporting, which allows them to submit VAT returns every month instead of every three months. HMRC will tell you to make payments on account if you send VAT returns quarterly and you owe more than £2.3 million in any period of 12 months or less. Monthly reporting offers certain advantages and considerations that businesses should evaluate before deciding if it is worth pursuing.
What Are The Advantages of Monthly VAT Reporting?
Improved Cash Flow
Monthly VAT reporting allows businesses to receive VAT refunds more frequently, enhancing cash flow and providing quicker access to funds. This can be especially beneficial for businesses with tight financial management or those that rely on regular injections of capital for growth.
Increased Accuracy and Control
With monthly reporting, businesses have a more precise and up-to-date view of their VAT obligations and entitlements. This can help identify errors or discrepancies earlier, allowing for prompt resolution and reducing the risk of non-compliance.
Streamlined Record Keeping
Monthly reporting encourages businesses to maintain a regular and efficient record-keeping process. By ensuring that financial records are organized and accurate on a monthly basis, businesses can minimize the risk of data loss, audit difficulties, and time-consuming reconciliations.
What Are The Considerations for Monthly VAT Reporting?
Monthly VAT reporting requires more frequent submission of returns, which can increase the administrative workload for businesses. This may necessitate additional resources, such as hiring accounting personnel or outsourcing to a professional accountancy firm to handle the increased reporting frequency.
If however, you outsource your VAT reporting to an accountancy like ourselves, then you won’t have to worry about a thing when it comes to admin. Our customers know we are trustworthy and dependable, which is why they entrust us with the management of their VAT returns. With Nordens, you can focus on growing your business while our teams of experienced accountants take care of your VAT Return. For more information, why not get in touch with our VAT Manager, Maria Mousoullou, and we can assist you in any capacity required.
Volatile Cash Flow
Businesses with irregular cash flow patterns may find it challenging to manage monthly reporting. If a company experiences significant fluctuations in sales or purchases, the VAT obligations and entitlements can vary greatly from one month to another. It is essential to consider the stability and predictability of the business’s financial situation before opting for monthly VAT reporting.
Monthly reporting can lead to the possibility of VAT refund delays or claims being carried forward to subsequent months. The timing of transactions becomes crucial, as purchases made towards the end of a month may not be eligible for a refund until the following month’s reporting period.
Should I Report VAT Monthly or Quarterly?
VAT refunds can be a valuable financial resource for businesses, particularly those incurring substantial VAT on purchases and expenses. Monthly reporting offers advantages such as improved cash flow, increased accuracy, and streamlined record keeping. However, the decision to pursue monthly VAT reporting requires careful consideration of administrative burdens, cash flow patterns, and transaction timing.
Ultimately, the choice between monthly and quarterly reporting depends on the specific circumstances and financial goals of the business. Consulting with a professional accountancy firm, like ourselves, is recommended to assess the feasibility and potential benefits of monthly VAT reporting for individual businesses. We can weigh up the pros and cons for you, so you can make an informed decision to optimise VAT reporting and effectively manage their finances.
We hope this has outlined to you whether your business should report VAT quarterly or monthly, and the repercussions this has on your business. If you’d like to know any further information, or anything accounting related, please do not hesitate to get in contact with us at Nordens, where one of our trusted advisors would be happy to talk you through your query.