VAT is one of the most confusing taxes. Here, AAT tutor Samantha Perkin provides a step-by-step guide to understanding VAT and completing a VAT return.

Step 1:  Understand what VAT is 

Value added tax (VAT) is a tax added to most products and services sold by VAT-registered businesses. Any business with a turnover of £85,000 that sells taxable supplies must register for VAT (businesses under this threshold can register on a voluntary basis). In the UK, VAT is charged at three rates: either 0%, 5% or 20%. 

Step 2:  Register with HMRC 

All VAT is now filed through Making Tax Digital (MTD). To register a business, head to gov.uk/register-for-vat. Once you’re registered, HMRC will send an email with critical VAT information on it. You’ll need this to file, so don’t delete this email!  

Step 3: If you’re filing a VAT return for a client, get authorised first 

If you’re an accountant filing on behalf of a client, you’ll need to register as an agent with HMRC first and be authorised to file through MTD for that client. You should have an agent services account with HMRC that gives access to services such as MTD. Log in to your account and select ‘authorise a client’ (make sure you have the following info handy: your client’s VAT number, postcode and the date their VAT registration became effective). HMRC will then send a link to share with the client – they’ll need to sign in with the Government Gateway to authorise it. 

Step 4: File the tax return using MTD-compatible software 

This is done with approved software such as Xero, QuickBooks, Sage or FreeAgent, which should have a link to connect with HMRC. 

Step 5:  Check the boxes 

On the VAT return, you’ll notice there are nine boxes to complete: 

• Box 1: VAT due on sales and other outputs. This is where a business enters all the VAT collected on behalf of HMRC on every sale of taxable supplies. 
• Box 2: VAT due on intra-community acquisitions of goods made in Northern Ireland from EU member states. For businesses in England, Scotland and Wales this will normally be ‘Nil’. 
• Box 3: Adds boxes 1 and 2 together – this is the total VAT to be reclaimed. 
• Box 4: VAT reclaimed on purchases and other inputs. This is the total VAT paid by the business in the course of their trade. 
• Box 5: Net VAT to be paid to customs or reclaimed by you (difference between boxes 3 and 4). HMRC automatically calculates this for you. 

These five boxes are the critical boxes for calculating VAT and should be completed to the penny. Boxes 6-7 cover the total value of sales and other outputs, while boxes 8-9 are for those businesses trading in Northern Ireland only. 

 Step 6: Don’t forget… 

• Entertaining can be confusing on VAT returns. No VAT can be reclaimed for entertaining for the purpose of trade. You can claim VAT on staff entertaining. 
• VAT on car expenses is complex. You’ll need to know how to apply fuel scale charges. HMRC’s website has good guidance on this. 
• There are also complicated rules around buying and selling to the EU. You may need specialist VAT support from an export specialist. 
• Penalties are charged to the client, not the accountant. You’ll receive points for late submission.  

Your AAT studies 

VAT returns are studied at AAT Level 3 in both AQ2016 and AQ2022. The indirect tax assessment is typically studied towards the end of Level 3. 

Further reading:

• Will HMRC’s new service speed up VAT registrations?
• How accountants should support clients in the cost-of-living crisis
• How accountants say HMRC can improve its performance

The accounting industry is constantly evolving. Keeping up to date with current industry standards is vital to secure a role and providing ongoing value to your clients.

AAT’s new qualifications, Qualifications 2022 (Q2022), incorporate a greater focus on technology, the future of the industry, and skills employers will need in the future. Here we speak to employers about why each of these areas is so important.

1. Understanding the importance of ethics

Ethics is one of the most important aspects of being an accountant. Clients need to trust your professional integrity, and the public needs to have confidence in your standards and principles.

Qualifications 2022 (Q2022), emphasise the fundamental principles of professional ethics from the very first levels. This has become a core part of the curriculum, running through every module at every level.

 “We get students really thinking about ethics, framework, and rules. It helps AAT members and students exercise professional scepticism and work through practical scenarios to understand how to apply the highest levels of professional judgement.”– Christina Earls, current AAT President

• 5 toughest ethical dilemmas
• Test your code of ethics – scenarios

2. Being able to provide a sustainable view

Where once people came and dumped a bag of receipts on an accountant’s desk, now receipts can be collected and processed online using apps and software. This element of the qualification looks at the development of digital technology, how businesses are sustainable in the context of proper investment, management of their accounts, and using digital tools.

“Finance professionals can add value in their roles by bringing various teams and experts to work on projects and have a whole life costing view, not just considering the immediate benefits but also the long-term financial and non-financial benefits of each project” Fatima Baig, Network Rail.

The AAT Sustainability Checklist

1. Ask how your organisation could benefit and help society and sustainability.

2. Make a start, however small.

3. Ensure that your organisation thoroughly researches all options when venturing into new areas or projects, this may mean putting the brakes on developments but will be cost-effective in the long run.

4. As accountants know: ‘what gets measured gets managed’, so start measuring.

5. Conduct regular risk assessments, including suppliers and third parties.

6. Do your CPD: clients want and need your expertise, governmental funding and policy changes may offer innovation and growth initiatives.

7. Set science-based targets.

3. Effective communication skills

Q2022 highlights the importance of practical communication skills within accountancy. Whether you are working in a practice, a business, or in the public sector, you need to be able to communicate knowledge, information, and numbers. Ensure you are ready for the future by improving your ability to think critically and translate those thoughts into compelling documents, as well as your ability to convey relevant financial information to stakeholders.

“It’s important to be able to communicate effectively. It’s no good sending pages and pages of information to someone who doesn’t have time to digest it. You must be able to deliver information in a concise way and get the point across quickly” – Sarah Powel FMAAT SJP Accounting

• Good communications skills – the key to your dream role?
• 3 skills you will need for a future in accounting

4. Understanding the impact of technology

“Tech and digital skills are at the forefront of everything we do. Rather than having meetings with clients to discuss what the accounts look like, you’re now able to provide data in dashboards and use the meetings to provide value-added insight” Fatima Baig, Network Rail.

This element of the new qualification explores the pros and cons of technology and interprets how technology is changing the role of the accountant. For example, the positives and negatives of implementing cloud accounting versus standard software packages.

“With regards to technology and us as accountants. Our role is to interpret the data and help our clients make better business decisions” John Atkins, Larking Gowen.

Further information:

• Qualifications 2022 – a way to future-proof accountancy careers
• Employer videos – Q2022 themes and why they’re important
• Quiz: Your top Q2022 questions answered

This content is brought to you by Training Link.

Stressed about the Synoptic? Don’t panic! Our tutor, Jennifer Nyland, reveals the tactics you need for AAT Level 4 synoptic success…

The AAT Level 4 Synoptic exam has the lowest national pass rate of all the Level 4 exams. It currently sits at only 55.8%. But this is still a big improvement from its first release when only a paltry 41.2% managed to pass.
This synoptic exam assesses the knowledge obtained in three mandatory assessments:
• Management Accounting: Budgeting
• Financial Statements for Limited Companies
• Management Accounting: Decision and Control
PDSY also requires you to demonstrate knowledge and understanding of the unit:
• Accounting Systems and Controls
Nationally, the number of students on their 4th and 5th attempts at both of these exams is a cause for concern.

Are the AAT Level 4 synoptic exams too difficult?

Many students pass this exam the first time, so could the problem be down to preparation and readiness?
AAT claim that large numbers of students have not successfully completed the core units before taking this exam. And some rush to try to fit in with the ‘synoptic windows’. This can have a dramatic impact on results. Some students are even opting to jump onto the new Q22 syllabus unit INAC to avoid the synoptic, but I advise you to stick with it … better the devil, you know!

Preparation and practice are key with all exams, but students seem to find this exam tough because there is so much content to remember and it is also mostly written.
But help is at hand… here are some top tips for tackling this exam, which can help you secure a pass.

Top Tips To Tackle The Synoptic

By tackling the tasks in a different order, you can manage your time more efficiently and deal with the ‘low-hanging fruit’ early on before tackling the more challenging sections. Let’s take a look…

Synoptic Task 1 – worth 20 marks

It covers easy multiple-choice questions based on your knowledge from Levels 2 & 3, e.g. control accounts reconciliations, ethics and learning outcomes 1 and 2 from the ASYC unit. You should spend a maximum of 15 mins on this Task.

Synoptic Task 5 – worth 20 marks

This task covers relatively easy ratio calculations and interpretation, covered in FSLC. The interpretation part of this Task is multiple choice and is computer marked. Look at the numbers. What has increased or decreased? What may have caused this? You should spend a maximum of 20 mins on this Task.
Can you see why this is important? This exam is 3 hours and worth 100 marks. So far, you could easily achieve 36-40% in the first 30 minutes of the exam in only two tasks!

Synoptic Task 3 – worth 15 marks

This task is not quite as easy as the previous one but is still relatively straightforward. This task will require you to identify the weaknesses. Read the question first, then read the information provided so you know what weaknesses you are identifying. This will save time. No marks will be awarded for identifying weaknesses in, for example, the sales process/system when the question requires weakness in the payroll systems or risk of fraud or how the weaknesses may affect profit. Always refer to the scenario, use names and assume the examiner knows nothing.

Use the marks available as a guide on how much to write. You should spend approximately 25 to 30 mins on this Task. 12-15 marks on this task are easily achievable, so you could gain 48-55% in just over the first hour of this exam.

Synoptic Task 6 – worth 15 marks

This question suitably follows on from Task 3. This question requires you to analyse the scenario and may require you to identify weaknesses and make recommendations. It could require you to explain or calculate a Cost-Benefit analysis or produce a SWOT analysis. Some students have complained to AAT and were confused why they were given a blank table/grid in an answer box, this is for your workings of the Cost Benefit Analysis. Remember for SWOT: Strengths and Weaknesses are normally internal. Opportunities and Threats are normally external. You should spend approximately 30 to 40 mins on this Task.

At this stage of the exam, we could have possibly achieved a further 12 -15 marks, meaning you could potentially achieve 60 – 70 marks in approximately 1 hour and 45 mins with two tasks left.
The final two tasks – Task 2 and 4, are those that students find the toughest. Complete the task you are more confident with first to gain maximum marks in the time remaining. You should spend approximately 35-40 mins each on these last two Tasks.

Synoptic Task 4 – worth 15 marks

This task covers decision-making techniques covered in MDCL. These could include, for example, relevant costing, limiting factors, contribution, make or buy, outsourcing, standard costing, product discontinuance, shut down or target costing.

Synoptic Task 2 – worth 15 marks

This task covers budgeting and budgetary reports from MABU, costing techniques and standard costing from MDCL and maybe elements of ASYC. Remember to answer the question being asked. So many students lose marks for not answering what is being asked of them. You should spend approximately 35-40 mins each on these last two Tasks.

Gain as many marks as you can, as early as possible – be efficient

You can see that by using this method, we have used the time efficiently from the start of the exam to gain as many marks as possible in the shortest amount of time because the performance and concentration of many students will start to deteriorate after 2 hours.
My final advice would be to make yourself familiar with the pre-release material and see what assumptions you can make of the company, always refer to the information in the scenario, use names, assume the examiner knows nothing and remember to include enough detail to gain the full marks available. Good luck!

This content is brought to you by Training Link.

With utility bills increasing and costs for essentials such as food, transport and petrol rising, many of us are reassessing our personal spending.

It can be hard to balance study and work if you are also worrying about your finances. All of us are aware of price rises, and whether studying full time straight from school, switching careers or combining employment with working towards an AAT qualification, there is a need to reassess spending and costs. Here’s a checklist on how to manage costs and budgeting so that you can continue to find time to work towards your AAT qualifications without financial concerns distracting you.

1. Make a budget

This is the single most helpful action you can take to begin sorting out your finances. Start by listing all your monthly (or weekly) outgoings, including rent or mortgage, utility bills, phone and broadband, membership of professional bodies, food bills, transport and travel, gym membership, and any other payments which go out every month.

Your regular and essential payments – council tax, rent, mortgage and utility bills – are your base costs which you need to cover with your income, student grant or savings.

Then work out how much you are spending on important but non-essential costs such as streaming subscriptions, gym membership, socialising and entertainment and clothes.

Can you make savings here? Do you use these subscriptions or are they on a monthly direct debit that you have forgotten to cancel?

Finally, set yourself a reasonable and realistic budget based on how much money you have coming in each month, versus your total costs.

2. Identify your non-essential costs

“Going through your spending with the finest tooth comb can help you find areas where you may want to cut back,” says Alex Brown, financial adviser at Succession Wealth.

“Seeing exactly where your money’s going will help you pin down where you can make savings. A great way of doing this is by breaking down your fixed monthly outgoings (utilities, mortgage, car insurance, etc.) and discretionary outgoings (gym, Netflix, morning coffee). This helps identify what could be reduced or abandoned altogether.”

Ask yourself: What’s coming in and going out? Can I get something cheaper? And (often the hardest of all): Do I really need that?

“You want to look at all your expenditure that’s going out each month, there may be a lot more than you think,” he says.

3. Shop around for better deals

Ben Gallizzi, energy expert at Uswitch.com, says there is still a lot of confusion about government support available around utility bills.

“It is important to remember that the price guarantee of £2,500 is only an average bill — so you will pay more if you use more energy,” he says.  

“It’s really important that households track their energy and cut their usage where possible – as well as keep an eye on all household spending.  

This could also involve shopping around for better deals on broadband and insurance costs when it is renewal time.

4. Try to pay off or transfer expensive debt

If you have a number of different debts in the form of credit cards, overdrafts and bank borrowing, check what interest rate you are paying on each one. Interest rates vary widely but some credit cards can be charging up to 30% APR interest on unpaid balances.

Laura Howard of Forbes Advisor, said: “According to the Bank of England’s latest Money and Credit Report average rates on interest-bearing cards stood at 18.57% in July. Not only are these rates painfully expensive – but they are variable. If you have to borrow, always look for a credit card offering 0% on purchases. Make shifting any existing card debt to a 0% balance transfer card a priority.”

You should also look carefully at your mortgage deal. If you locked into a fixed rate a couple of years ago and your deal is coming to an end, you may need to act quickly to refix your home borrowing to a low interest loan. If you have any questions, speak to your lender who can explain your options, or seek professional advice from an independent mortgage broker.

5. Make the most of savings rates

If you do have some savings, compare the best buy rates on line as savings interest rates are starting to rise.

Leaving spare money in an old savings account or in your current account will mean that your cash will earn little or no interest.

“Savers who do nothing, get nothing – they’ve got to switch to get a better return on their money,” says Laura Suter, head of personal finance at AJ Bell.

“Almost anyone with money sitting in a current account, or who has had their savings account for a year or more, could get a better rate by switching.”

Alex Brown of Succession Wealth says that when it comes to financial security, one of the most important things you can do is to keep emergency savings aside for when you may need them.

“Having a nest egg that you can tap into may help you weather a rising interest rates storm,” he says. “One method is to create a dedicated savings account that you only use for this purpose. This way, you can easily access the funds when you need them, but they remain out of reach for everyday spending.”

Aim to build up enough to cover between three to six months’ expenses, or as much as you can afford. The best thing to do is make room for your savings in your budget as one of your outgoings, he says. By doing so, it’ll help you see your savings as a must, rather than a must-do-later.

6. Don’t neglect your pension

He also warns that it is best not to dip into your pension or investments.

“Drawing down on your pension or selling investments could leave you worse off in the long run, so it’s important to consider all of your options before making any decisions,” he says.

More help and information

If you are struggling with your finances, you can get free advice from charities and organisations such as National Debtline, StepChange and Citizens Advice. Never pay for debt advice, as this is unnecessary and can make your finances even more stretched.

If you are feeling that your finances are being squeezed, there are budgeting tools available online.

Mortgage issues are best dealt with as soon as possible, so if you are struggling to keep up with repayments, contact your lender as soon as possible.

• National Debtline
• StepChange Debt Charity
• Citizens Advice

In our careers as accountants, all of us have blind spots that we need to work on and skills and qualities that make us remarkable but that we take for granted.

Here’s how to develop yourself in the areas where you lack confidence or experience and how to draw on your unique talents to power your career onward and upwards.

Discover your potential

“When you can identify what you are good at and what comes naturally to you and overcome the things that hold you back, it’s a game changer,” says Marian Evans, an Entrepreneur, Business Coach and Founder of ElevateBC.

“The equation I always use with clients is performance equals potential minus interference,” she explains. “We often underestimate our potential.”

First of all, work on identifying those key strengths that you have a flair for and that come naturally to you. A useful exercise is asking others what they think you are strong at so you can identify key strengths.

She defines an “interference” as something that holds us back – such as self-doubt, lack of confidence or a skills gap. Once you are aware of this, you can put an action plan together to help you overcome these issues.

New skills are a journey, not a destination

Sharath Jeevan is the author of Intrinsic and the Founder and Executive Chairman of Intrinsic Labs. 

“The definition of Mastery is about being the best version of yourself you can be,” he says. “It’s not about judging yourself. Try and find motivation from getting better, and realise that there are always areas that we can grow in.”

He suggests that rather than see an area as a deficit, try to see it as a growth or learning opportunity and take the first small step.

“For example, suppose you are nervous about public speaking. Perhaps you could do a five-minute summary of the discussion at the end of your next group meeting. During the meeting, you could perhaps present a small section of the discussion. And so on… The key is to see Mastery as a journey, not a destination.”

He also advises getting used to learning new skills because that develops a powerful “muscle” of lifelong learning that will help you as you move through your career.

Be prepared to adapt and evolve

Whether you’re in the market for a new role or considering a career change, it can be helpful to take stock or conduct a personal audit of your strengths and identify any weaker areas you can improve upon, says Mandy Watson, Managing Director of Ambitions Personnel. 

“One thing is for certain in finance: change is a constant, and it’s important to recognise the need to adapt and evolve,” she says. “In these rapidly changing times, skills such as adaptability and communication are really valuable to employers.”

Having a weak area isn’t a problem – not recognising it or not being prepared to do anything about it is.

“If you have a strong sense of what makes you, you, then you’re more likely to be able to express yourself with confidence when it comes to job interviews, asking for promotions and when dealing with clients,” she says.

Use your strengths to harness your energy and drive

Strengths energize us and enable us to perform at our peak, in both good times and during challenging times, says Liz Sebag Montefiore, director and co-founder of 10Eighty and a career and executive coach.

“When managers’ strengths spot in their people and take time to recognise and develop these strengths, their teams are more likely to go the extra mile as they feel happier, more fulfilled and productive,” she says.  She says there are a number of ways to understand your strengths, including: 

• Work preferences: The type of work you prioritise and actively seek out will provide clues as to your strengths 
• Persistence and tenacity: You are more likely to show focus and determination in areas of strength
  Positive emotions: You will be energized when doing work that plays to your strengths
• Continued success: You are likely to achieve repeated success when performing an activity using a strength
• Fast learning: You will find it easier and, therefore, quicker to learn new things when playing to your strengths 

Learn from the experts

Consider what your job might look like in the future. Are you prepared for how it might evolve? If not, this is your chance to bolster those unique talents, so you are prepared for your career direction.

“If you look at the top Chief Financial Officers and why they’ve got to where they are, you will often find it is their human skills that make the difference,” says Lewis Maleh, Executive recruitment expert and CEO and Founder of Bentley Lewis. “Whilst developing your experience is important, investing in your human skills will go a long way in furthering your career.”

He says that in the future of work, human skills or “soft skills” are becoming more and more important.

Unfortunately, much of the feedback you receive from line managers and job interviews tends to focus on “how you can improve” or “what you failed to demonstrate”. While this has its place, we tend to remember negative feedback or a scathing comment long after the event. Instead, he recommends you focus on what you can do well.

“Now more than ever, with the relentless pace of change, and uncertainty of how the world of work is shaping up, we must think clearly and focus on our strengths,” he says. “If we want to perform to the best of our abilities and do the best job we can, don’t dwell too much on the criticism and negative feedback.”

Be proactive and prepared to innovate

The accountant of the future will need to hone their communication and strategy skills in order to offer clients an enhanced service, says Matt Lewns, Partner Manager at accounting software developer iplicit.

After a degree in Accounting and Finance at Plymouth University, he qualified with the Chartered Institute of Management Accountants in 2017 while running the finance function at School Business Services, a global provider of education products and support. accounting software developer. In 2018 he joined Mazars UK, becoming a Financial Outsourcing Manager a year later.

“With the technology readily available to businesses of all sizes, any practice can provide transactional services to clients,” he says. “What differentiates one practice from another is the services they can provide beyond this – the ‘value add’.

“Practices are now seeing the value in advisory services more than ever before as the day-to-day activities become more and more automated through the use of software and technology – ‘if you think like a robot, you will be replaced by one’.”

He explains that accountants now need to position themselves as their clients’ trusted business advisers, helping them to grow and achieve their objectives – whether that is scaling to exit within a certain time frame, or helping them to expand into new and emerging markets.

In this scenario, using soft skills has become more important for accountants. He suggests you consider the following questions to identify areas you may need to develop:

• Are you able to communicate confidently and effectively with your client base?
• Can you build relationships?
• Can you leverage your internal and external network to deliver the ultimate service to your client base?
• Can you identify opportunities and requirements as and when they arise?
• What valued services beyond the statutory requirements are you providing for your clients?

Focus on success, not failure

“The trouble with humans is that we have evolved under a survival blueprint, worrying about all the things that could go wrong, from back when we were hunter gatherers,” says Ollie Ollerton, motivational speaker, Founder of BreakPoint, which delivers a range of corporate and individual training programmes, and a former Special Forces operative.

“It means we’re wired in today’s society to look for things to go wrong and focus on them when they do. That means that out of ten situations, when we get nine wins and one failure, we focus on the failure. That negativity doesn’t allow us to move forwards.”

He suggests we reframe failure and the way we use it.

“If you’re never willing to risk failure because you’re scared of it, you’re never going to learn and you’re never going to grow. But if we’re willing to step into short term discomfort, we can gain confidence through experiences; good ones and bad ones.”

Another powerful way to build confidence is by debriefing when things go wrong – an absolutely crucial process in the Special Forces. ‘Plan, Brief, Deliver, Debrief’ is the military adage and it boils down to ensuring there is a process for every scenario.

“I can’t get my head around people in the corporate world not running debriefs; it means you don’t just move onto the next mission without learning what worked or what didn’t,” he says.

“Debriefs encourage improvement; they allow staff to be involved in decisions, empowering them with responsibility, teaching them to be self-critical and to learn from mistakes. For the individual, exploring why something hasn’t worked and how you’ll tackle it differently gives you reassurance that you’re more likely to succeed at the next attempt.”

Ask for feedback

Asking for feedback is a powerful tool, says  Jeremy Kourdi, a business writer, executive coach, consultant and Director with Kourdi Associates. You can develop insight and self-awareness or self through a 360 appraisal or a psychometric test, or by chatting with a friend or colleague about how they see your strengths and weaknesses.

Another effective approach is to use a coach or to self-coach using questions such as: How is this going to play out? Where are we now? What’s going to help me get through this? What do I need to do? What attitudes do I need to have?

It is also important to think about the effect you have on others through your behaviour and how that might affect your workplace relationships, he says.

Further reading:

• Which accountancy role is right for you?
• The skills employers want – and how to get them
• Career profiles from AAT