How Do I File a VAT Return in the UK

Introduction

VAT (Value Added Tax) is a tax charged on most goods and services in the UK. Businesses registered for VAT must report their sales and purchases to HMRC, usually every three months. The process involves submitting a VAT return, which calculates how much VAT you owe or can reclaim.

Since 2022, almost all VAT-registered businesses must file returns digitally under the Making Tax Digital (MTD) system, which means using approved software rather than submitting forms manually.

How VAT returns work

A VAT return summarises your business’s VAT activity for a specific accounting period, known as the VAT quarter. The return shows:

The total sales and purchases for the period.

The VAT you charged customers (output tax).

The VAT you paid on purchases and expenses (input tax).

The amount of VAT you owe to HMRC or the refund due to you.

If your output VAT is higher than your input VAT, you pay the difference to HMRC. If your input VAT is higher, you can reclaim the difference as a refund.

When to file a VAT return

Most businesses file a VAT return every quarter, although some may file monthly or annually depending on their VAT scheme.

Your VAT return and payment are usually due one month and seven days after the end of your accounting period. For example, if your VAT quarter ends on 31 March, you must file and pay by 7 May.

You can check your VAT return deadlines by logging into your HMRC online account.

Step 1: Gather your VAT records

Before you file your VAT return, you need accurate records of all transactions during the accounting period. These include:

Sales invoices showing VAT charged.

Purchase invoices showing VAT paid.

Credit notes for refunds or adjustments.

Bank statements confirming payments and receipts.

Under MTD rules, these records must be kept in digital format using accounting software or spreadsheets linked through bridging software.

Step 2: Calculate your VAT

Your accounting software will usually calculate your VAT automatically, but it helps to understand the key components:

Output tax: The VAT you charged on sales to customers.

Input tax: The VAT you paid on business purchases.

The difference between the two determines whether you owe VAT or can reclaim it.

You must exclude transactions that are VAT-exempt or outside the scope of VAT.

Example

If you charged customers £20,000 in VAT and paid £14,000 in VAT on expenses, you owe £6,000 to HMRC.
If you charged £10,000 and paid £12,000, you can reclaim £2,000.

Step 3: Use Making Tax Digital software

All VAT-registered businesses must use Making Tax Digital (MTD) compatible software to file returns. This software connects directly to HMRC’s systems and sends your VAT return electronically.

Popular MTD-compatible software includes:

QuickBooks

Xero

Sage

FreeAgent

Zoho Books

MTD bridging software for spreadsheet users

The software automatically pulls your sales and expense data, calculates VAT, and submits the return digitally to HMRC.

If you use spreadsheets, bridging software links your spreadsheet totals to HMRC’s online portal.

Step 4: Complete your VAT return

Your VAT return consists of nine boxes that summarise your VAT activity for the period. These are:

VAT due on sales and other outputs.

VAT due on acquisitions from other EU countries (if applicable).

Total VAT due (Box 1 + Box 2).

VAT reclaimable on purchases and other inputs.

Net VAT due (Box 3 Box 4).

Total sales and other outputs excluding VAT.

Total purchases and other inputs excluding VAT.

Total value of goods supplied to other EU countries (if applicable).

Total value of goods acquired from other EU countries (if applicable).

Your accounting software fills in these boxes automatically, but you should always check that the figures match your records before submitting.

Step 5: Submit your VAT return to HMRC

Once you have reviewed your figures, submit the return through your accounting software. You will receive confirmation that HMRC has received it successfully.

Make sure to submit before the deadline, as late submissions can trigger penalties or interest charges.

Step 6: Pay or reclaim VAT

If you owe VAT, you can pay HMRC by:

Direct debit.

Online bank transfer.

Debit or corporate credit card.

Through your accounting software if it supports payment integration.

If HMRC owes you a refund, it is usually paid directly into your business bank account within ten working days.

Step 7: Keep records

You must keep all VAT-related records for at least six years, including invoices, receipts, and digital files. HMRC may request to inspect these records during a compliance check.

Make sure your records clearly show:

The VAT charged and reclaimed.

Details of any zero-rated or exempt sales.

Adjustments for errors or bad debts.

Common mistakes to avoid

Missing the submission deadline or payment date.

Forgetting to include all input VAT on eligible expenses.

Claiming VAT on personal or non-business purchases.

Failing to update MTD software settings after rate changes.

Submitting duplicate invoices or omitting credit notes.

Double-checking your VAT return before submission helps avoid penalties and ensures your figures are accurate.

Example scenario

Jane owns a small online shop and files VAT quarterly. She uses Xero to record her transactions. For the quarter ending 30 June 2024, she charged £6,000 VAT on sales and paid £4,000 VAT on expenses.

Her software calculates the £2,000 she owes HMRC and fills in the nine boxes of the VAT return automatically. Jane reviews the data, submits her return through Xero, and pays the £2,000 by direct debit before the 7 August deadline.

Penalties for late filing or payment

HMRC’s VAT penalty system uses a points-based approach. Each late submission adds one point, and when you reach your points threshold, a fine is issued. Interest also accrues on late payments.

To avoid penalties:

File on time.

Keep accurate digital records.

Ensure your accounting software is MTD compatible.

If you do make an error, correct it on your next return or notify HMRC immediately.

Conclusion

Filing a VAT return in the UK involves keeping digital records, calculating your VAT correctly, and submitting your return through MTD-compatible software. By maintaining accurate accounts, reviewing your figures carefully, and meeting deadlines, you can stay compliant and avoid penalties.

For complex businesses or first-time filers, an accountant can help you understand the rules, configure your software, and ensure your VAT returns are accurate and on time.