How to submit a UK VAT return if you are a strange organisation

freshness:

As part of our continuing mission to promote and celebrate all forms of administration, we are publishing our UK VAT accounting procedure. This is important if you are running an arts organisation, non-profit or independent research organisation (or all three in one glorious muddle, like we are) as this means your income is likely to be a mix of commercial and grant funding, making you partially exempt for VAT and a cause of a particular kind of fascinated horror by all tax and accounting professionals you run into at parties.

Disclaimer: as usual - we are not accountants so this is just our process, and is the result of legal and accounting advice we have been given in relation to our specific case (and we might well have interpreted that incorrectly).

VAT accounting is something we do every quarter, and has become the main administration duty of running FoAM Kernow - the bonus to keep in mind is that after doing these properly you can compile the yearly company accounts much more quickly, in just an afternoon. However it's just slightly too long between returns to feel confident each time, so we need to write everything down and check some of the details every three months.

The aim of the game is to fill in 9 boxes on the HMRC website with the right numbers and click submit.

Log in to the UK Government "gateway" and you get text message with number code, choose "submit VAT return" on left of page, click on the period you are submitting - which should be listed as option (you get about five weeks after a quarter has ended to do the submission).

Box 1: "VAT due in this period on sales and other outputs"

This is the total of all the VAT on invoices we have sent out - this means the work done during this VAT accounting period, so may include invoices made after the end of the period - we need to check each time that haven't included invoices in multiple VAT periods.

Box 2: VAT due in this period on acquisitions from other EC Member States (Box 2)

Usually for us this is 0 - this is for stuff bought from the EU where they reverse charge the VAT, which now needs to be paid in the UK.

Box 3: Total VAT due (the sum of boxes 1 and 2)

(this is automatically calculated)

Box 4: VAT reclaimed in this period on purchases and other inputs, (including acquisitions from the EC)

This is the VAT added up from expenses that you are reclaiming from HMRC for projects which are 'under the scope' of VAT - so projects that you receive direct grant funding for should not be included, and neither should any projects that are considered a redistribution of public funding (e.g. where you are a named collaborator on a grant and have a collaboration agreement with the host organisation - as opposed to subcontractor/service provision roles).

To calculate this number we need to separate out projects that we charge VAT on, and also include our core studio costs (like rent, internet, tools for general use), list all the items bought for these, add up VAT that is specified on each invoice (even if it's been calculated incorrectly by the company we're purchasing from - if it's not specified at all you can generally assume it's 20% but this isn't ideal).

Box 5: Net VAT to be paid to HM Revenue & Customs or reclaimed by you

(Difference between boxes 3 and 4) - this is automatically calculated, and is the important number as it is the amount of VAT you pay to HMRC. This is automatically taken out of (or put into, rarely!) your account, you don't have to do anything to pay it.

Box 6: Total value of sales and all other outputs excluding any VAT

This is the total (without VAT) of every invoice excluding direct-grant-funded projects (or any projects that are considered a redirection of public funding).

Box 7: Total value of purchases and all other inputs excluding any VAT

This is everything we've bought (excludes payroll, corporation tax etc. but includes subcontractor fees).

We include expenses for grant funded projects which are outside of the scope, with the understanding that while we can't reclaim the VAT, the expenses themselves are inside the scope of VAT and need reporting here, even if the funding for them isn't. This is basically the total expenses incl VAT minus the VAT you have reclaimed in box 3.

Box 8: Total value of all supplies of goods and related costs, excluding any VAT, to other EC Member States

Like box 6 but only the EC projects, converted to pounds - e.g. Penelope and Clearwing projects.

Box 9: Total value of all acquisitions of goods and related costs, excluding any VAT, from other EC Member States

Like box 7 but only stuff we've bought from other EU countries, paid in euros for example, to companies registered in other EC countries.

Our process

To make this easier we make a spreadsheet of all purchases from the bank account in our accounting software (GNUCash). We save this together all the purchase receipts, and all our sales invoices so everything that would need to be audited is all together in one place.

All our expenses in our accounting software have a code added to the end of the description - (id) for invoice exists in digital form, and (ip) for invoice exists in paper form, which is kept in a box (not so much of them these days, thankfully).

All expenses need proof in the form of a VAT invoice (if reclaiming VAT), a non-VAT invoice is ok if not. If there are any lost invoices, we obviously don't try to reclaim VAT on them.

One important thing is that the numbers we need to report are the totals on the invoices *not* the totals that came out of the bank - as these can be different!

EC Sales List declaration

Just when you think you are finished, you also need to do one of these. This is a legal requirement for VAT registered businesses that have any customers in other EC countries (needed I presume to attempt to track payments across the single market).

You need the VAT numbers for each customer, and to add the totals you have invoiced them in pounds, together with what kind of work it was (the options are 'goods', 'services', or 'triangulation') - you don't need to do this for customers who are not VAT registered.

Please let us know if you spot anything wrong in this documentation! If you are new to this, we hope this helps, and good luck...