Smart tips to file your VAT Return correctly

In United Kingdom, Value Added Tax (VAT) is an important part for operating a business. For registered entities completing and submitting VAT returns is a mandatory and recurring obligation.

This process tells HMRC how much VAT you charged your customers (Output VAT) and how much VAT you paid when buying things for your business (Input VAT).

The difference between these two amounts shows whether you need to pay money to the government or if the government needs to pay you back.

VAT compliance depends on two main things: keeping accurate records and submitting your returns on time (timely filing). If you make mistakes or file late, you may face penalties, fines and extra charges. This can hurt your business’s money situation and reputation.

This guide gives you practical tips for preparing and filing VAT returns properly, helping your business stay fully compliant with VAT rules.

Key Takeaways

• Always file your VAT returns digitally using Making Tax Digital (MTD) compliant software. Deadlines are usually one month and seven days after your VAT period ends.
• If you miss four deadlines in a year, you’ll face penalties of £200 or more for each additional late return.
• Keep thorough digital records of all sales, purchases, invoices, and bank statements to stay compliant and be ready for an audit.
• Use the correct VAT codes consistently (Standard, Reduced, Zero, Exempt) to avoid mistakes.
• Common errors include late filings, wrong VAT coding, not registering on time, and claiming VAT on personal or entertainment expenses.
• VAT rules change regularly, so keep up to date and get professional advice for tricky cases like international trade or partial exemption.

What are VAT Returns in the United Kingdom?

The VAT return meaning is simple it is a form (called VAT 100) that VAT-registered businesses in the UK use to tell HMRC about their sales and purchases. It shows how much VAT they collected from customers and how much VAT they paid on business expenses during a specific time period.

The return calculates whether you owe HMRC (when you collected more VAT than you paid) or what HMRC owes you (when you paid more VAT than you collected). Every VAT registered business must submit a return, even if there’s no VAT to pay or claim back.

Overview of VAT Return frequency

HMRC decides how often you need to file VAT returns when you register your business. Most UK businesses are required to file a VAT return quarterly, which means every three months.

• Quarterly Returns: This is the standard schedule that most businesses follow.
• Monthly Returns: Some businesses choose to file every month, especially if they regularly get VAT refunds (like exporters or new businesses with high expenses). This helps their cash flow because they get money back faster.
• Annual Accounting Scheme: Small businesses that qualify can file just one VAT return per year, though they usually need to make advance payments throughout the year.

HMRC VAT Quarters and Deadlines

When you register, HMRC assigns specific HMRC VAT quarters to your business. They do this to distribute deadlines throughout the year, so not all businesses are filing at once. Your deadline is one calendar month and seven days after your VAT period ends. By this date, you need to submit your return online and pay any VAT you owe.

For example: If your VAT quarter ends on 31 March, your deadline is 7 May. Make sure to check your own specific dates in your HMRC online account.

What to include in a VAT Return?

A UK VAT Return has nine boxes, whether you’re looking at a paper form or filling it in through approved software. Having an understanding of what goes in each box is essential for completing your return correctly.

VAT Return Information Checklist

Breakdown of VAT Return Boxes

HMRC provides detailed instructions on filling in and submitting your VAT Return (you can find these in VAT Notice 700/12).

Here’s a breakdown of the most important boxes:

Here’s a simple VAT returns example. Let’s look at a three-month period where:

• Total Sales (without VAT): £20,000 (Box 6)
• Output VAT (Box 1): £4,000 (that’s 20% of £20,000)
• Total Purchases (without VAT): £10,000 (Box 7)
• Input VAT Reclaimed (Box 4): £2,000 (that’s 20% of £10,000)

In this HMRC VAT return example, the business would pay HMRC £2,000.

Essential tips for preparation of VAT Returns

Preparing VAT returns properly requires good financial habits and using modern technology.

1. Keep your records organised

You need to track all your money coming in and going out during the reporting period.

Use accounting software: Keep all your business transactions in digital software that can create reports. Make sure your invoices connect directly to your final return numbers.

Use the right VAT codes: When you enter sales or purchases, always choose the correct VAT code (Standard, Reduced, Zero, Exempt, etc.) right away. This stops mistakes later.

Audit-proof tip: HMRC legally requires keeping VAT records for at least six years. Retain digital copies with backups for compliance and to support audits.

Gather your documents: Before you start, make sure you have:

Also remember that all VAT data and financial information must be stored securely. Under UK GDPR, businesses are responsible for protecting customer and supplier financial data in all digital VAT records and software systems.

2. Calculate your VAT

Go through the calculations step by step, then double-check all your figures.

Find your final total (Net liability): Add up your Output VAT (tax you collected from customers) and your Input VAT (tax you can claim back). The difference is what you pay or get back.

Check what you can claim: Don’t claim back all Input VAT automatically. Some things you can’t claim, like business entertainment or personal use items.

Reconciliation: Check your VAT numbers match:

• Your bank statements
• Your profit and loss statement (P&L)
• Make sure your sales figures match up

Cash Accounting Scheme: If you use this scheme, make sure your accounting software calculates VAT only on the date money was received or paid, not the invoice date.

Also check that your taxable turnover stays below £1.35 million (the limit to join the scheme).

If your business makes both taxable and exempt supplies, partial exemption rules mean you may only reclaim a proportion of Input VAT. Calculations can be more complex, so check HMRC’s partial exemption guidance or seek specialist advice. Businesses involved in overseas trade or distance selling should also review HMRC notices for cross-border VAT rules.

3. Submit and pay

The last step is checking everything one more time and sending it in on time.

Final check: Review your return before sending. Look extra carefully at large or unusual transactions like property or equipment purchases.

Meet deadlines: Know when you must file and pay (monthly or quarterly). You must submit a return even if you owe nothing.

File digitally: Use approved software to send your return electronically to the tax authority. This follows MTD rules and gives you proof of submission.

Keep payment proof: Pay electronically by the deadline. Save the payment confirmation for your records.

If you are filing monthly or quarterly, note that penalties for late VAT returns now apply after missing four deadlines within a 12‑month period. Each additional late submission at this point can incur a fine of £200 or more.

4. Get help and stay updated

Ask an expert: For complicated issues like international sales, bad debt relief, or special schemes, talk to a VAT accountant.

Stay current: Keep a calendar of tax rule changes. Train your team on proper invoicing and VAT rules.

For complex or edge cases such as partial exemption, cross-border transactions, distance selling from the UK or using specialist schemes HMRC publishes detailed VAT guidance and notices that can clarify rules and prevent costly errors.

Common VAT Return errors to avoid

When preparing VAT returns, be aware of common return errors that can lead to an HMRC review:

1. Getting tax points wrong: Recording VAT in the wrong period. For example, using the invoice date instead of when goods were delivered or payment was received.
2. Input VAT mistakes: Claiming VAT back on personal expenses or items where you can’t reclaim VAT. This includes business entertainment or purchases from suppliers who aren’t VAT registered.
3. Using schemes incorrectly: Making errors when applying special schemes like the Flat Rate Scheme or Retail Schemes.

Submitting your VAT Return and meeting deadlines

The final step is submitting your return properly and making sure you pay on time to avoid penalties.

Step-by-step guide to filing VAT Returns

Understanding how to file a VAT return is simple when you break it down into clear steps.

• Collect all relevant documents: Make sure all sales invoices, purchase receipts and any necessary adjustments are digitally recorded and reconciled.
• Complete each VAT Return box: Use your MTD-compatible software to calculate and fill in the figures for Boxes 1 through 9.
• Review and finalise: Do a final check of your VAT return as described earlier.
• Submit digitally: Your MTD software will connect electronically to HMRC’s gateway to process your filing submission. You’ll get an on-screen confirmation if the submission is successful.
• Pay VAT due on time: Set up your payment so it reaches HMRC’s bank account by the official deadline.

Can you submit a VAT Return early? Pros and Cons

Yes, you can submit a VAT return early, but there are both benefits and risks to consider.

• Pros: It gives you peace of mind, allow you to fix any issues without deadline pressure, and if you’re due a refund, you’ll get it faster.
• Cons: You must be completely sure that all transactions for the entire period are accurately recorded and processed. If you miss a transaction, you’ll need to follow error correction procedures later.

VAT Return online submission tips

To ensure a smooth filing process and avoid unnecessary stress, follow these simple rules.

• Don’t wait until the last minute as late submissions result in penalties under the new system.
• Check that your MTD software has valid authorisation to communicate with HMRC’s services.

VAT compliance and deadlines

Following VAT rules is important to keep your business safe from fines and legal trouble. Understanding what happens if you miss deadlines or pay late helps you manage your VAT responsibilities properly and avoid unnecessary costs. Let’s look at the penalties and how you can stay on track.

What happens if you file or pay late?

• Late filing: According to government of UK, every time you miss a VAT return deadline, HMRC gives you a penalty point. When you reach a certain number of points (for example, 4 points if you file quarterly), you’ll get a £200 fine. After that, you’ll be charged another £200 fine for each late submission while you’re at the points limit.
• Late payment: If you pay VAT late, you’ll be charged interest from the day after the deadline until you pay. You may also face penalties if you’re very late.

How to remove penalty points?

Penalty points don’t stay forever. If you haven’t reached the penalty point threshold, individual penalty points will automatically expire after about 2 years (24 or 25 months), depending on when your return was due.

If you have reached the threshold and want to remove all penalty points, you must:

• Submit all your VAT returns on time for a set period (the length depends on how often you file). For example, if you file quarterly, you must submit on time for 12 months.
• Submit any overdue VAT returns that were due in the previous 24 months.

Once you meet both conditions, all your penalty points will be removed.

You can check your penalty points and appeal penalties through your online VAT account.

Using payment plans or ‘Time to Pay’ arrangements

If your business is facing temporary money problems and can’t pay its VAT bill on time, you need to act quickly.

• Contact HMRC immediately if you can’t pay on time. They may agree to a “Time to Pay” arrangement, which lets you pay your VAT in instalments over a set period. Keep in mind that you’ll still be charged interest on the amount you owe.

Helpful tools and software features

While you must file digitally, templates and software features can help you plan, check your work, and keep better records.

VAT Return templates: Can they help?

Even though you must file using MTD software, templates can be useful for double-checking your work.

• You have to file using MTD-compatible software, but a VAT return template (usually a spreadsheet) can be helpful for checking your numbers before you submit. These templates typically show the nine boxes, so you can enter your data manually and compare it with your accounting software before filing.

What to look for in accounting software?

When choosing software, look for features that help you stay accurate, compliant, and efficient.

• Automatic MTD-compliant submission: This is essential for digital filing.
• Automated bank feed reconciliation: Makes checking transactions much easier.
• Error checking: Features that highlight unusual transactions so you can review them.
• Scheme handling: The ability to work with different VAT schemes (like Cash Accounting or Flat Rate).
• Detailed audit trails: Clear records that show where every number in your return comes from.

Conclusion

The successful filing of VAT return depends on keeping detailed records and using MTD-compliant digital tools. By following these tips for preparing and filing VAT returns, your UK business can handle VAT requirements, reduce the risk of VAT return errors, and avoid costly penalties.

Remember the three key principles of compliance: Accuracy, Organisation and Timely Submission. Use digital tools and stay updated with any HMRC changes to ensure a smooth VAT process, quarter after quarter.

FAQs about preparing and filing VAT Returns

Can I file my VAT return myself ?

Yes, you or an employee can file the VAT return yourself, if you use Making Tax Digital (MTD) compatible software. Since April 2022, all VAT-registered businesses must submit returns digitally using HMRC-approved software. You can’t use the old manual online form anymore.

How do I do a VAT return?

You need to use MTD-compatible accounting software to calculate the nine boxes of the VAT 100 form. Add up your Output VAT (what you collected) and Input VAT (what you paid) for the period. Then submit the figures digitally to HMRC and make sure your payment reaches their account by the deadline.

What to check before submitting VAT return?

Before submitting, make sure, all sales and purchase invoices for the period are recorded, Box 1 (Output VAT) and Box 4 (Input VAT) amounts are correct for your business, you’re only claiming VAT on business-related items and Box 5 (Net VAT) is the right difference between Box 1 and Box 4.

How to correct errors in VAT return?

The way you correct an error depends on its size. If the net error is £10,000 or less, you can simply fix it in your next VAT return. If the error is large (between £10,000 and £50,000 or exceeds 1% of your turnover), you must formally notify HMRC by using a formal error correction process. Always keep detailed records of the error and how you corrected it.

How do I do a VAT return?

You need to use MTD-compatible accounting software to calculate the nine boxes of the VAT 100 form. Add up your Output VAT (what you collected) and Input VAT (what you paid) for the period. Then submit the figures digitally to HMRC and make sure your payment reaches their account by the deadline.

What is the deadline for filing a VAT return?

The deadline for filing a VAT return for both submitting and paying is typically one calendar month and seven days after your VAT accounting period ends. For example, if your quarter ends on March 31st, the deadline is May 7th.