VAT is a tax levied or charged on most goods and services in the UK, and it is compulsory for VAT-registered businesses to collect and remit this tax to HMRC. This post is a step-wise guide to provide you with all the fundamentals of how to file VAT returns as a self-employed worker so your business flourishes while also staying compliant with HMRC.
Similar to the other businesses that are liable to carry out their VAT obligations after meeting the current VAT threshold limit of £90,000 for the 2024-2025 tax year, self-employed individuals must also fulfil this obligation if they stand eligible for it.
It is noteworthy that VAT is essential to the self-employed more than the companies with extensive business since being self-employed means you are riding solo and do not need an in-house staff to deal with VAT responsibilities on your behalf.
Consequently, it is highly significant that you understand how to file VAT returns as a self-employed worker.
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How to file VAT returns as a self-employed worker in the UK?
The following steps will elaborate on the process of how to file VAT returns as a self-employed worker:
Determine if you need to register for VAT:
The paramount factor that establishes whether or not you will register for the VAT as a self-employed is the VAT threshold. This threshold is the limit set by the HMRC to determine your business’s eligibility for VAT registration.
The current VAT registration limit for the 2024-2025 tax year is £90,000.
Further elaborating, the VAT threshold is the amount of your annual earnings or turnover your business can generate before VAT registration becomes obligatory or the turnover becomes VAT-taxable.
Similarly, you must register for VAT once your turnover crosses this amount, or you expect it to exceed it within a 12-month period. It signifies that irrespective of whether you have been running your business for one month or several years, registration is mandatory when their turnover exceeds £90,000 at any point within the 12-month duration.
Interestingly, you can also voluntarily register for VAT even if your turnover is below this threshold to reclaim VAT on expenses.
Register for VAT with HMRC:
Fortunately, the VAT registration process is the same whether a self-employed individual is applying for voluntary or mandatory registration.
By principle, self-employed individuals can easily register for VAT online through the HMRC website. By creating a “Government Gateway Account”, you can enter the relevant details to make your business become VAT-registered, such as:
- Your birth date.
- Your ID number, like passport or driving license.
- Your NI (National Insurance) number.
- Your business’s nature and turnover.
- Your bank account details.
- Your business’s relevant financial records, including the payslips or P60s
Thereafter, you can log in to the following page of the government website with your gateway account and apply for VAT registration:
Eventually, once registered, HMRC will issue you a VAT registration number and your VAT online account.
Calculate VAT owed or reclaimable:
After getting your business VAT-registered, you will start charging VAT to your consumers and keep a correct record of how much you owe or can claim back.
Essentially, calculating VAT that you must pay and the VAT reclaimable will be included in your VAT returns. For further clarity, your VAT returns will detail:
Input VAT:
The invoices you receive or the VAT you pay on all your business-related purchases is called input VAT.
Output VAT:
The VAT you charge on sales. On the other hand, the invoices you issue or the VAT you charge to consumers on the products or services you sell is called output VAT.
Net VAT payable or reclaimable:
Luckily, while you can charge VAT on your sales, you can claim back VAT on your purchases if you have paid excess input VAT than what you have charged the customers.
For instance, If your output VAT exceeds input VAT, you owe HMRC the difference between the two. Conversely, if your input VAT is higher, you can reclaim the difference from the HMRC. HMRC usually processes VAT refunds within 10 working days.
Maintain accurate digital records of all VAT transactions:
Making Tax Digital (MTD) is a government-launched scheme with the aim of encouraging businesses to maintain and manage their tax records online with the help of dedicated software.
With MTD, your process of record‑keeping and payment becomes simplified and the burden of costly administrative errors becomes reduced.
Now, keeping accurate digital records of all your VAT transactions is another key element in understanding how to file VAT returns as a self-employed worker.
Usually, an accountant can do it via HMRC-compliant software such as QuickBooks, Xero, or FreeAgent to keep records and file your VAT returns.
Additionally, you must maintain digital records of all VAT-related transactions, including:
- All sales invoices indicating the output tax you collected from customers).
- All purchase invoices show the input tax you paid on your business-related expenses.
- VAT charged and paid.
Complete and submit your VAT return:
After knowing and implementing steps included in how to file VAT returns as a self-employed worker, it is time to file your returns. To file your VAT return, you will sign up to your Government Gateway account and go to the VAT section.
Alternatively, you can also use MTD-compliant accounting software to submit your return directly.
Furthermore, it is vital that you submit your VAT return every quarter, i.e. every 3 months. This is called your accounting period or VAT period.
Your VAT return should necessarily include:
- Total sales and purchases.
- Output and input VAT calculations.
- Amount payable to HMRC or reclaimable.
You must remain mindful to ensure that all figures integrated into your VAT returns are accurate and match your digital records before submitting your return.
Consider the appropriate payment method to submit the VAT due:
If you owe any VAT to HMRC , you must pay it by the due date. You can use a payment method that is convenient to you, such as:
- Direct Debit (recommended).
- Online banking ensures faster Payments through BACS, CHAPS.
- Debit or corporate credit card.
- At your bank or building society by using a paying-in slip from HMRC.
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Meet filing deadlines:
Submitting your VAT returns on time is tremendously important, for late VAT payments may result in penalties and interest charges from HMRC.
Notably, the deadline for submitting your return online is one month and seven days following the end of an accounting period. For instance, if your VAT quarter ends on 31 March 2025, you must submit your return by 7 May 2025.
More importantly, this is the deadline for paying your due VAT to HMRC as well. As a result, you must allow time for the payment to reach HMRC’s account.
To learn more about what penalties could be imposed by HMRC in case of late submissions, visit the government website:
Conclusion:
Summed up briefly, coming to grips with how to file VAT returns as a self-employed worker is crucial in the UK if they are registered for VAT.
Likewise, submitting accurate VAT returns not only ensures compliance with HMRC tax regulations but also avoids penalties and allows businesses to reclaim VAT on eligible expenses.
Moreover, an expert accountant can deal with all your VAT-pertaining responsibilities with consummate ease since they are proficient in meeting tax obligations.
By finding yourself one of the skilled accountants registered with Accountiongfirms, you can get economical and customised tax advice based on your business preferences. Thus, do not let the opportune moment of relieving your mind from the tax hassle slip away from your fingers and contact us today.
Disclaimer: The information provided on AccountingFirms.co.uk is for informational purposes only and should not be considered as financial advice. Always consult with a professional accountant to ensure compliance with UK laws and regulations.