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How to File Your VAT Return Correctly

Posted on by Umar WeProms

Filing your VAT return can be a complex process, especially if you’re new to VAT reporting or unsure about compliance. As a VAT-registered business in the UK, you’re required to submit a VAT return to HMRC regularly. Ensuring accuracy and timely submission can save your business from penalties and additional scrutiny. In this blog, we’ll walk you through the step-by-step process to file your VAT return correctly while staying compliant with current VAT regulations.

Step 1: Determine Your VAT Accounting Scheme

Before you begin the VAT filing process, it’s important to understand which VAT scheme applies to your business. HMRC offers different schemes based on the nature of your business and its turnover:

  • Standard VAT Scheme: You file a VAT return every quarter.
  • Flat Rate Scheme: Ideal for small businesses, where you pay a fixed percentage of turnover as VAT.
  • Annual Accounting Scheme: Suitable for businesses that prefer to file one VAT return per year, though you still make advance payments throughout the year.

Choosing the correct scheme ensures that your VAT return reflects accurate liability.

Step 2: Gather Necessary Documentation

Having all your financial records in order is crucial for filing an accurate VAT return. Here’s a checklist of essential documents:

  • Sales invoices (outgoing VAT)
  • Purchase invoices (incoming VAT)
  • Receipts for business expenses
  • Records of zero-rated or exempt sales (if applicable)

Maintaining an organised record-keeping system is vital to prevent errors and facilitate a smooth VAT audit, should HMRC request one.

Step 3: Calculate VAT Owed or Reclaimed

To file your VAT return, you’ll need to calculate two key figures:

  1. VAT you’ve charged on sales (Output VAT) – This is the total VAT collected from customers for your products or services.
  2. VAT you can reclaim on business purchases (Input VAT) – This is the VAT paid to your suppliers for goods or services used in your business.

The difference between the two determines whether you owe VAT to HMRC or can reclaim a VAT refund.

Formula:
VAT Owed = Output VAT – Input VAT

If Output VAT exceeds Input VAT, you’ll need to pay the difference to HMRC. If Input VAT exceeds Output VAT, you can request a VAT refund.

Step 4: Use Making Tax Digital (MTD)-Compliant Software

Since April 2019, all VAT-registered businesses above the VAT threshold (£85,000) must use HMRC-approved MTD software to file their VAT returns digitally. Some popular MTD-compliant software includes:

  • Xero
  • QuickBooks
  • Capium
  • Sage

Ensure that the software you use integrates well with your existing accounting systems and provides a clear summary of your VAT data before submission.

Step 5: Submit Your VAT Return to HMRC

Once you’ve calculated your VAT liability and reviewed the figures, it’s time to submit your return. Follow these steps:

    1. Log in to your HMRC MTD compliant software.
  • Grant permission to your MTD compliant software using your HMRC login details.
  1. Access the ‘VAT Returns’ section.
  2. Input the VAT return details manually or upload your data into MTD software.
  3. Double-check all figures before final submission.
  4. Submit the return and save the confirmation receipt.

Step 6: Pay VAT or Claim a Refund

If your VAT return shows that you owe HMRC, ensure you make the payment before the due date. You can pay via:

  • Direct debit
  • Bank transfer
  • Credit or debit card

If you’re entitled to a refund, HMRC typically processes it within 10 days, provided there are no issues with your submission.

 

Tips to Ensure Accurate VAT Filing

  • Stay Updated on VAT Regulations: Tax laws can change, so staying informed will help ensure compliance.
  • Set Reminders: Late submissions can lead to penalties. Setting up reminders ensures timely filing and payment.
  • Consider Hiring a Professional Accountant: If VAT filing feels overwhelming, working with a professional accountant can save time and reduce errors.

Common VAT Filing Mistakes to Avoid

  1. Incorrect VAT calculations – Ensure you accurately calculate Input and Output VAT.
  2. Filing late – Missing deadlines can lead to penalties.
  3. Using non-MTD software – Ensure your software is compliant with HMRC’s MTD requirements.
  4. Claiming VAT on exempt purchases – Double-check which purchases are eligible for VAT claims.

Conclusion

Filing your VAT return correctly is a fundamental part of running a VAT-registered business in the UK. By staying organised, using the right software, and following HMRC guidelines, you can ensure accurate submissions and avoid unnecessary penalties. If you’re unsure about any aspect of VAT filing, consulting with a qualified accountant can provide peace of mind and keep your business compliant.

FAQs

  1. What is the deadline for filing a VAT return in the UK?
    The deadline is usually one month and seven days after the end of your VAT accounting period.
  2. Can I file a VAT return myself, or do I need an accountant?
    You can file it yourself using MTD-compliant software, but hiring an accountant can ensure accuracy and save time.
  3. How often do I need to file VAT returns?
    Typically, VAT returns are filed quarterly, but annual filing options are available for eligible businesses.
  4. What happens if I miss the VAT filing deadline?
    Late submissions can result in penalties and interest charges on any VAT owed to HMRC.