How to do a VAT Return

Doing a VAT return is one of those tasks that many business owners put off because it feels technical, intimidating, or easy to get wrong. In reality, once you understand the process and the logic behind it, a VAT return becomes a routine compliance task rather than something to fear.

In this article, I am going to walk you through exactly how to do a VAT return in the UK, step by step, in plain English. I will explain what information you need, how to calculate the figures, how Making Tax Digital affects the process, and the common mistakes I see businesses make time and time again. I will also share how I advise clients to structure their VAT process so it runs smoothly every quarter.

By the end, you should understand not just how to submit a VAT return, but how to do it confidently and correctly.

Before you start, understand what a VAT return is

A VAT return is a report you submit to HMRC that summarises:

• How much VAT you have charged to customers

• How much VAT you have paid on business expenses

• The difference between the two

If you have charged more VAT than you have paid, you owe HMRC the difference. If you have paid more VAT than you have charged, HMRC owes you a refund.

A VAT return usually covers a three month period, although some businesses submit monthly or annual returns depending on the scheme they use.

Check your VAT period and deadline

Before doing anything else, confirm the VAT period you are reporting on and the deadline for submission.

Most VAT returns are due:

• One month and seven days after the end of the VAT period

For example, a VAT period ending 31 March is usually due by 7 May.

Both the VAT return and the payment are due by the same date, so timing matters.

Make sure your records are complete

A VAT return is only as good as the records behind it.

Before starting the return, you should make sure:

• All sales invoices for the period are recorded

• All purchase invoices and expenses are entered

• Bank transactions are reconciled

• Any cash sales are included

• VAT has been coded correctly

Rushing into a VAT return without checking this is one of the biggest causes of errors.

Understand the difference between net, VAT, and gross

VAT returns are based on net figures, with VAT reported separately.

You need to be clear on:

• Net amounts, which exclude VAT

• VAT amounts, which belong to HMRC

• Gross amounts, which are the total paid or received

Your bookkeeping software should separate these automatically, but only if transactions are entered correctly.

Using Making Tax Digital compliant software

Almost all VAT registered businesses must comply with Making Tax Digital.

This means:

• You must keep digital VAT records

• You must submit VAT returns digitally

• You must use compatible software

This could be accounting software like Xero, QuickBooks, or Sage, or bridging software linked to spreadsheets.

Manual submission through the HMRC portal is no longer allowed for most businesses.

Step by step, how to do a VAT return

Once your records are up to date, the actual process of doing a VAT return follows a clear structure.

Step one, review your sales

Start by reviewing all sales during the VAT period.

Check that:

• Sales are included in the correct VAT period

• The correct VAT rate has been applied

• Zero rated and exempt sales are treated properly

• Any credit notes are included

Sales figures form the basis of your output VAT, which is the VAT you owe on sales.

Step two, review your expenses

Next, review your business expenses.

Check that:

• You have valid VAT invoices where VAT is reclaimed

• The VAT amount is shown clearly

• The expense relates to the business

• VAT is actually reclaimable

Not all VAT can be reclaimed, even if it appears on an invoice.

Step three, check VAT codes

Every transaction should have a VAT code.

Common VAT codes include:

• Standard rate

• Reduced rate

• Zero rated

• Exempt

• Outside the scope

Using the wrong code can distort your VAT return significantly.

This is one of the most important checks I carry out before submitting any VAT return.

Understanding the boxes on a VAT return

A UK VAT return consists of nine boxes. You do not need to fear them, but you do need to understand what each one represents.

Box 1, VAT due on sales

This shows the total output VAT charged to customers during the period.

It does not include sales values, only the VAT amount.

Box 2, VAT due on acquisitions

This applies mainly to goods bought from the EU.

Many UK businesses now have nothing in this box, but it still exists.

Box 3, total VAT due

This is simply:

• Box 1 plus Box 2

It shows the total VAT you owe before considering any reclaims.

Box 4, VAT reclaimed on purchases

This is the total input VAT you are reclaiming on expenses and purchases.

This figure must be supported by valid VAT invoices.

Box 5, VAT payable or refundable

This is the key figure.

• Box 3 minus Box 4

If the result is positive, you owe HMRC money.
If the result is negative, HMRC owes you a refund.

Box 6, total sales

This shows your total sales value for the period, excluding VAT.

It includes standard rated, reduced rated, and zero rated sales.

Box 7, total purchases

This shows the total value of purchases, excluding VAT.

It does not include wages, dividends, or loan repayments.

Box 8 and Box 9

These relate to EU trade.

Many businesses now leave these blank, but they must still be reviewed.

Reconciling the VAT return

Before submitting, I always recommend reconciling the VAT return.

This means checking:

• Sales totals agree to your reports

• VAT balances tie into the ledger

• Box 5 matches your expectation

• No obvious anomalies appear

If the VAT due suddenly jumps or drops compared to previous periods, investigate why before submitting.

Submitting the VAT return

Once you are satisfied the figures are correct, you submit the VAT return through your Making Tax Digital software.

After submission:

• Save a copy of the VAT return

• Note the payment amount

• Note the payment deadline

Do not assume submission means payment has been made.

Paying the VAT

VAT can be paid in several ways, including:

• Direct Debit

• Online bank transfer

• Debit or credit card

If you use Direct Debit, HMRC usually collects the VAT a few days after the deadline, but only if the return is submitted on time.

Late submission can result in payment not being collected.

What if you cannot pay the VAT

If you cannot pay your VAT on time, do not ignore it.

HMRC may allow a Time to Pay arrangement, but you must act early.

Leaving VAT unpaid without contact almost always leads to penalties and interest.

Common mistakes I see when doing VAT returns

Over the years, I have seen the same issues repeatedly.

These include:

• Submitting before records are complete

• Using the wrong VAT codes

• Reclaiming VAT without valid invoices

• Missing sales invoices

• Including personal expenses

• Relying entirely on software without checks

Software helps, but it does not replace understanding.

VAT schemes and how they affect the return

Different VAT schemes affect how figures are calculated, but not how the return is submitted.

Flat Rate Scheme

You still complete a VAT return, but:

• Box 1 is calculated differently

• You usually reclaim little or no input VAT

Cash Accounting Scheme

VAT is based on payments received and made, not invoice dates.

This can help cash flow, but requires careful tracking.

Annual Accounting Scheme

You submit one VAT return per year, but still make interim payments.

The final return follows the same structure.

How I advise clients to manage VAT returns

In practice, the smoothest VAT returns come from good habits.

I usually advise:

• Weekly or monthly bookkeeping

• Regular bank reconciliations

• Reviewing VAT codes early

• Preparing returns well before deadlines

• Treating VAT as HMRC’s money

VAT becomes stressful only when it is left too late.

What happens if you get a VAT return wrong

Mistakes can happen, but they must be dealt with properly.

Small errors can often be corrected on the next VAT return. Larger errors may require a formal disclosure to HMRC.

Ignoring errors is never the right approach.

Why confidence matters with VAT

VAT is one of the taxes HMRC monitors most closely.

Late returns, frequent errors, or inconsistent figures can trigger enquiries.

Doing VAT returns properly protects not just your cash flow, but your peace of mind.

Final thoughts

Doing a VAT return is not about ticking boxes for HMRC. It is about understanding how VAT flows through your business and making sure it is handled correctly.

Once you understand the logic behind the figures, the process becomes far less daunting. With good records, the right software, and a simple review process, VAT returns can be completed calmly and confidently every time.

If VAT ever feels overwhelming, it is usually a sign that the underlying records or systems need attention. Fix those, and the VAT return becomes exactly what it should be, a routine part of running a compliant UK business.