Preparing a VAT Return involves more than entering a few figures into accounting software. You need to make sure your sales, purchases, VAT rates and supporting records have been reviewed carefully before submission.
For most VAT registered businesses, VAT Returns are submitted every three months. The usual deadline is one calendar month and seven days after the end of the accounting period, and the VAT payment normally needs to reach HMRC by the same deadline.
Simple errors can lead to incorrect VAT being reported, additional work and, in some circumstances, penalties or interest. A careful review before submission can help reduce these risks.
Reporting the wrong sales figures
One of the most important checks is to make sure your sales figures are complete and accurate.
Your digital records should contain the information needed to calculate the VAT due on your supplies, including the tax point, net value and VAT rate.
Check that you have included:
- All relevant sales for the accounting period
- Credit notes and adjustments
- The correct tax point
- The correct VAT rate
- Transactions recorded through different sales systems
Forgetting a sale or using the wrong VAT rate can affect the amount of output VAT reported to HMRC.
Using the wrong VAT rate
Not every supply is standard rated. Depending on the goods or services and the circumstances, a transaction may be standard rated, reduced rated, zero rated or exempt.
Applying the wrong treatment can result in an incorrect VAT Return.
Before submitting, review unusual or new types of sales and check the relevant HMRC VAT guidance rather than assuming they should all receive the same treatment.
Claiming input VAT without checking the evidence
Another common problem is claiming input VAT without having the appropriate records to support it.
For many purchases, you need a valid VAT invoice or other acceptable evidence before claiming input tax. HMRC explains that VAT invoices provide evidence for customers reclaiming VAT as input tax.
Review your purchase records and check that:
- The supplier information is correct
- The VAT amount is clearly shown
- The purchase relates to the business
- The VAT is actually recoverable
- You have retained the relevant supporting documents
Not every expense that includes VAT automatically allows a full input tax claim.
Claiming VAT on personal or non recoverable costs
Business owners sometimes claim input VAT on costs that are partly private or subject to specific restrictions.
Before claiming input VAT, check whether the expense is genuinely connected with the business and whether any special VAT rules apply.
Particular care may be needed for expenses involving private use, vehicles, entertainment, mixed use assets and other restricted categories.
A transaction being paid from a business bank account does not automatically make all of the VAT recoverable.
Missing credit notes and supplier adjustments
Credit notes can change the amount of VAT due or recoverable.
If a supplier issues a credit note, make sure the corresponding adjustment is reflected in your records and VAT Return where appropriate.
Likewise, review customer credit notes so that output VAT is reported correctly.
These adjustments can be easy to overlook if your bookkeeping is not reviewed regularly.
Getting the VAT accounting period wrong
Your VAT Return should contain transactions for the correct accounting period.
Check the tax point and the VAT accounting method you use, particularly if your business has transactions close to the period end.
This is especially important where invoices are issued before payment is received or where you use the Cash Accounting Scheme. HMRC’s digital record keeping rules recognise that the tax point used can depend on the accounting method.
Forgetting imports or reverse charge transactions
Some businesses need to deal with additional VAT rules for imports or specific supplies where the reverse charge applies.
These transactions should not simply be treated like ordinary domestic purchases.
If your business imports goods or services, or receives supplies subject to the domestic reverse charge, check that your accounting software is configured correctly and that the relevant amounts appear in the appropriate VAT Return boxes.
Relying on software without reviewing the figures
Accounting software can calculate a VAT Return, but it does not remove the need for human review.
Incorrect VAT codes, duplicated transactions or missing information can still produce an incorrect return.
HMRC’s Making Tax Digital rules require VAT registered businesses to keep digital records and submit VAT Returns using compatible software. The business remains responsible for the accuracy of the information submitted.
Before submission, review the figures rather than accepting the software calculation automatically.
Breaking the digital linking rules
Most VAT registered businesses are required to keep digital VAT records and submit VAT Returns through compatible software.
Where more than one software product is used to maintain the electronic account, the relevant records generally need to be transferred through digital links. HMRC does not regard simple copy and paste as a digital link.
For businesses using spreadsheets, bookkeeping software or bridging software, it is important to understand how the data moves between systems.
Failing to reconcile your records
A VAT Return should be checked against your underlying records before submission.
A useful review can compare:
- Sales records
- Purchase records
- VAT control account
- Business bank account
- VAT invoices
- Credit notes
Reconciling these figures can help identify missing transactions, duplicate entries and incorrect VAT coding.
Submitting or paying late
Missing the deadline can create additional problems.
For VAT accounting periods beginning on or after 1 January 2023, late VAT Returns generally result in penalty points. Once the relevant penalty point threshold is reached, a £200 penalty can apply, with further penalties for subsequent late submissions while at the threshold. Late payment can also result in a separate penalty and late payment interest.
Make sure you allow enough time for your payment to reach HMRC, rather than making it at the last possible moment.
Ignoring errors from previous VAT Returns
Finding an old VAT error does not necessarily mean that you need to submit the entire return again.
HMRC has specific rules for correcting errors in previous VAT Returns. Some errors can be adjusted on your next return, while larger or certain other errors need to be reported separately. HMRC currently states that errors can generally be corrected on the next return where the net value is £10,000 or less, or where it is between £10,000 and £50,000 and does not exceed 1% of total sales. Larger errors and certain other errors must be disclosed separately.
Keep a clear record explaining what the error was, when it was discovered and how the correction was calculated.
Keep your VAT records organised
Good record keeping makes VAT compliance much easier.
Keep relevant:
- VAT invoices
- Sales invoices
- Purchase invoices
- Credit notes
- Bank records
- Import documentation
- VAT calculations
- Accounting records
Under Making Tax Digital for VAT, required VAT records must be maintained digitally in functional compatible software, while certain supporting documents must also be retained as required.
Use a pre submission VAT checklist
Before submitting your next HMRC VAT Return, check:
- All sales are included
- The correct VAT rates have been applied
- Purchase VAT claims are supported
- Credit notes have been accounted for
- Imports and reverse charge transactions have been reviewed
- The accounting period is correct
- Your VAT control account has been reconciled
- The return has been reviewed before submission
- The payment deadline has been noted
This final review can help catch mistakes before they reach HMRC.
How Tax2u can help
VAT can become complicated when a business has multiple VAT rates, imports, credit notes, mixed use expenses or frequent transactions.
Tax2u can help with:
- VAT Return preparation
- VAT record reviews
- Making Tax Digital for VAT
- VAT error corrections
- Bookkeeping and reconciliations
- HMRC VAT compliance
We can review your figures before submission and help you understand any VAT issues that need attention.
Final thoughts
Most VAT problems can be reduced by keeping accurate records and taking time to review the figures before submitting your return.
Check your sales, purchase VAT, credit notes, accounting period and any unusual transactions carefully. If you discover an error in a previous return, deal with it promptly using the appropriate HMRC correction process.
If you need help checking or submitting your VAT return, get back to us at Tax2u. Our team can review your records, help correct VAT issues and keep your business on track with HMRC.