Working out your VAT refund or payment

Updated on May 28, 2022

Calculating VAT is a piece of cake. The difficult aspect is keeping track of all your transactions. Let’s get a better understanding of how things work.

A person on their phone calculating VAT

VAT is a simple formula

VAT is calculated by comparing what you paid for goods and services to what you earned from selling them.

An illustration of the VAT formula

Amounts due to HMRC are due if the result is affirmative. You’ll get your money back if it’s a negative number.

How to work out VAT in four steps

1. Make a note of the VAT paid on your business purchases

A VAT form indicating VAT paid, and a delivery moped

2. Make a note of the VAT collected on sales

A VAT form indicating VAT collected, and some bakery foods

3. Add both types of VAT

VAT calculations

4. Run the VAT formula

Calculating VAT owed

Avoid nasty surprises with smart bookkeeping

You’ll want to make more money than you spend, just like any other firm. The most likely outcome is that you’ll be hit with a VAT bill. Regularly do the four-step VAT equation to:

send money to a different account to meet your VAT tax once you know how much you’ll owe

Automate your VAT calculations

In order to keep track of VAT, you can utilise online accounting software like Xero. It keeps track of all VAT received and paid and does the necessary calculations automatically.

How software tracks VAT owed and collected

You’ll always know where you stand thanks to the software’s constant tracking of your VAT issue. Connect to HMRC at the end of the VAT period and file your return online. Everything has been prepared.

To the best of our knowledge, Xero does not offer any kind of accounting, tax, or business advice. For informational purposes only, this tutorial has been provided. Consult your own professional advisors before acting on any information presented in this article or taking any action based on it.

VAT Guide For Business

Starting off in VAT? To learn more about how MTD for VAT affects you, please contact us. Using this tutorial will make things easier for you.

What is VAT and how much is it?

It’s likely that you’ve heard of VAT, or Value Added Tax, which is a tax that retailers in the United Kingdom must charge customers.

Registering for VAT

Make sure you know if VAT is anything you need to be concerned about. If yes, learn how to apply for VAT registration.

Calculating VAT and issuing VAT invoices

For VAT-registered businesses, prices must include VAT. VAT invoices are also required. Learn how to do it.

Claiming back VAT

Businesses who are VAT-registered can claim back the VAT they pay on business costs. Let’s have a look at the process.

Working out your VAT refund or payment

Calculating VAT is a piece of cake. The difficult aspect is keeping track of all your transactions. Let’s get a better understanding of how things work.

Filing VAT returns through Making Tax Digital

Having registered for VAT means you’ll have to file your returns online on a regular basis and deal with the tax authorities. Here’s how to go about it.

Tools and guides for your business

Having learned the ins and outs of VAT, you may find it difficult to keep up with all the regulations. Xero has the tools to assist you.