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Difference Between VAT Return and Tax Return in the UK

There are ‘N’ number of things any company has to consider, but tax management is the most crucial one. Successful returns of tax and VAT are important for any company that can be a startup or a full-grown one. 

So, to avoid any legal issues, you must file accurate and timely VAT and Tax returns. If you’re confused between the both, end the confusion. This article will discuss the difference between VAT returns and Tax Returns in the UK. So, dive in here to catch all the information.

What is a Tax Return? (In Simple Words)

Businesses, small firms, startups, big companies, or individuals have to file a tax return. It is a form declaring your income and capital gains. Depending on your eligibility, you can also use certain benefits like tax allowances and relief. The tax returns are regulated by HM Revenue & Customs (HMRC)

Filing a tax return on your taxable income is a legal responsibility. The small business owners, sole traders and self-employed individuals can pay tax annually to the HMRC. It’s called a self-assessment tax return. It is a yearly submission of business gains and losses, including revenue, national insurance (NI) and capital gains

After successful registration for self-assessment or any tax return, HMRC will issue you a unique UTR number. So, after successful business registration, you may prepare accounts every year. However, it is advised to match this with HMRC’s tax year-end of 31 March. 

Lastly, in simple words, you’re eligible to pay tax as a business when your income is over eligibility. Then, you will pay the tax, calculating your profit. It’s a different sum for everyone. You must not fail to submit it before the due date. Otherwise, you will welcome penalties.

What is a VAT Return? (In Simple Words)

The business and companies file a VAT return every three months to the HMRC. Customers initially pay the value-added tax for the company’s services or goods they purchase. Then, the company submits it to the concerned authorities. So, indirectly it’s the tax paid by the customers.

For succeeding in filing a VAT return, your annual income must be above £85,000 annually. Then, you can register for VAT and choose various schemes. VAT is a complicated process that requires detailed knowledge of each term. For example, how much VAT you should pay, the right scheme, and reclaiming VAT on certain things. So, spending too much or too little VAT will only bring you a loss. 

To solve all the confusion, you can reach out to exceptional VAT services, offer valuable advice, and simplify registration and formalities. VAT registration is mandatory and filing VAT on time is very important. 

After availing of reliable services, you can focus on your work and leave all the hectic processes to the professionals. Many businesses invest in accounting and VAT payer services, which is a success. It helps you stay responsible and not let ignorance get away from your benefit.

TIP: It’s not a hard and fast rule that your income should be above £85,000 annually to register for VAT. It’s your call as some businesses find VAT registration as a mark of a trusted source.

Tax Return and a VAT Return – What’s the Difference?

A value-added tax (VAT) return is the money returned on sales of goods and services related to the value of the goods sold. Businesses collect this sum and then submit it to the government. It’s charged on the majority of the goods traded in the UK. So, the tax return is a tax on the annual profits of any business. Tax Return

There can be different tax rates according to the income of the business. So, there can be a Basic Rate, an Additional Rate or even a Higher Rate. The companies having large profits pay large tax returns. In very simple words, the return is based on your business or company’s declared profit over an accounting year.

On the other hand, the VAT returns on both income and expenditure. VAT is returned to the HMRC according to the schemes you avail. It can be a Flat rate Scheme, Cash Accounting or Annual Accounting. Generally, businesses pay VAT after every three months. But, it can be monthly and annually too.

This is because VAT isn’t income for your business; it’s money you collect on behalf of HMRC. So, if you are registered and eligible for both and other types of taxes, keep records and file returns timely. A good accounting service may prove helpful and save your money, valuable time and lots of legal formalities.

Highlighting the key Differences

  • VAT is the charged and recovered return on transactions, including incomes and expenditures. A tax return is the amount of money returned to the profit.
  • VAT is very periodic and has different schemes. You can reclaim certain things like transport, business building expenditure etc.
  • A Tax return is annual, based on the profits you made.
  • VAT is not income but money that the seller collects to pay to the HMRC.

Some Smart Tips Every Taxpayer Must Follow:

Irrespective of any tax, which is direct or indirect, you must follow some rules. Once registered and eligible for tax payment, you must take it seriously:

  • One must consider hiring accountants and tax-paying services for expert advice. It also helps you to come out of the problems quickly.
  • Always keep a record of every receipt, bill and document. It’s helpful while availing of some compensation.
  • Always pay your tax on time and clear past dues.
  • Make a clear cut margin between personal and professional expenses. It includes vehicles, celebrations, fuel use, machinery etc.
  • Manage payrolls by hiring a company or do it yourself. Managing the money can save you lots of funds.

Wrapping up

Certain tax terms and types of tax may confuse you. In addition, these terms and procedures can be confusing for a startup or even a professional business. So arm yourself with knowledge and know your rights. Ignorance can trouble you, so hiring a capable team of accounts and tax advisors can save lots of time. Finally, always file timely and accurate tax returns.

Read: Important VAT Advice and Tips for Small Businesses

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