What you need before you start
- Your VAT registration number and your VAT online account details.
- Making Tax Digital compatible software, because VAT records must be kept and filed digitally.
- Sales records showing the VAT charged on each invoice.
- Purchase invoices showing the VAT you were charged on business costs.
- Your VAT scheme, standard, flat rate or cash accounting, because it changes the sums.
How to do your VAT return, step by step
- Confirm your VAT period. Check the dates your return covers in your VAT account. Most businesses file quarterly. Filing for the wrong period is a surprisingly common slip.
- Total your output VAT. Add up the VAT you charged on sales in the period. On the standard scheme, most goods and services carry VAT at 20%, but some are reduced rated at 5% or zero rated, so do not simply apply 20% to everything.
- Total your input VAT. Add up the VAT on your business purchases where you hold a valid VAT invoice. You cannot reclaim VAT on things like most entertaining, or on costs with no VAT invoice.
- Apply your scheme. On the Flat Rate Scheme you do not reclaim input VAT in the normal way; instead you pay a fixed percentage of your gross turnover. On cash accounting you only count VAT once money actually changes hands. Make sure you are calculating the way your scheme requires.
- Work out the figure. Output VAT minus input VAT is what you owe. If input VAT is larger, HMRC owes you a refund, which is common for zero rated or newly equipped businesses.
- File through your software. Submit the nine box return directly from your Making Tax Digital software. You cannot key most VAT returns straight into the HMRC website any more; the figures must flow from digital records.
- Pay on time. Pay by one calendar month and 7 days after the period end. A direct debit set up in your VAT account collects it automatically three working days after the deadline, which removes the risk of forgetting.
A worked example
Miro runs a plumbing company on the standard scheme. In the quarter he charged customers £54,000 plus £10,800 VAT (output VAT). He bought materials and fuel with £4,200 of VAT on them (input VAT). His VAT due is £10,800 minus £4,200, which is £6,600 to pay HMRC. Because he sets money aside in a separate VAT pot each week, the payment never eats into his working cash.
Common VAT return mistakes
- Reclaiming VAT with no valid invoice. A bank statement is not enough; HMRC can disallow the claim.
- Charging or reclaiming the wrong rate. Assuming everything is 20% when some items are zero or reduced rated.
- Reclaiming VAT on blocked items. Business entertaining and most cars cannot be reclaimed.
- Missing the digital link rule. Copying figures by hand between spreadsheets can break the Making Tax Digital requirement for a digital trail.
VAT rules bite hard when they go wrong
Getting a rate wrong or missing the digital record rules can turn into penalties and interest fast. If you would rather not carry that risk every quarter, TaxTune prepares and files your VAT returns, keeps you Making Tax Digital compliant, and checks you are on the scheme that costs you least.
Frequently asked questions
When is my VAT return due?
For most businesses a VAT return and payment are due one calendar month and 7 days after the end of the VAT period. So a quarter ending 31 March is due by 7 May. A direct debit collects payment automatically a few working days after that date.
Do I have to use software for VAT?
Yes. Under Making Tax Digital, VAT registered businesses must keep digital records and file through compatible software. You can no longer type most VAT returns straight into the HMRC website.
What is the VAT registration threshold?
You must register for VAT once your taxable turnover passes £90,000 in any rolling 12 month period, or if you expect to pass it in the next 30 days. You can also register voluntarily below that if it suits your business.
Can I claim a VAT refund?
Yes. If the VAT on your purchases is more than the VAT on your sales, HMRC refunds the difference. This is common for zero rated businesses and for a quarter with large equipment purchases.
What is the Flat Rate Scheme?
It is a simpler scheme where you pay a fixed percentage of your gross turnover instead of tracking input VAT on every purchase. It suits some low cost businesses but not others, so it is worth checking the maths before joining.
What happens if my VAT return is late?
HMRC uses a points based penalty system. Each late return adds a point, and once you reach the threshold a £200 penalty applies, with further £200 penalties for each later default. Late payment also attracts interest.
Hand your VAT returns to us
If VAT quarters are a recurring headache, let us take them over. We keep your records digital and compliant, prepare and file every return, tell you exactly what to pay and when, and review whether a different scheme would save you money. All on a fixed monthly fee.