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Value Added Tax, commonly known as VAT, is a tax placed on almost all goods and services a business sells to other businesses or consumers. Every company that pays VAT for a part of a product or service gets a credit for the VAT they have paid, but it is the business’s responsibility to ensure that their VAT is paid correctly and on time.

If you have registered to pay VAT, then you need to submit a VAT return regularly. This is a fairly straightforward process, especially since you must use software approved by HMRC to ensure you comply with their rules and expectations. In fact, HMRC has instituted a comprehensive digital process for VAT returns which is known as Making Tax Digital (MTD), and you should have been automatically signed up to MTD unless you are exempt.

You must submit your VAT returns and payments on time or you risk fines and reputational damage. This makes it very important for you to have the right software and systems in place so you can pay VAT easily and timeously.

Step 1: Determine if you need to Submit a VAT Return

If you have registered for VAT, then you need to submit a VAT return. If you are not sure when you’re supposed to submit your VAT return, visit your online VAT account. It will tell you exactly what deadlines you have to work towards. If you want to know more about these deadlines, read our in-depth article on how to meet VAT return due dates and avoid penalties.

Who needs to submit a VAT return?

Any company registered for VAT has to submit a VAT return. If your business earns more than £85,000 a year, then you need to register for VAT and start charging VAT on your products and services. You can register for VAT if you earn lower than the threshold to start claiming back on VAT.

How often do you need to submit a VAT return?

Your VAT return due dates will depend on your arrangement with HMRC. Monthly VAT return due dates are common and are submitted one month and seven days after the end of your VAT period. So, if you submit your return for January, you will need to complete and file your return by 07 March. Companies that are regular repayment traders or have a specific arrangement with HMRC file their returns every month.

Most commonly, VAT returns are to be submitted quarterly. This follows the same process as monthly VAT returns in that you need to submit and make a payment on the same day as your submission deadline, which is one month and seven days from the end of your VAT period. You will submit a VAT return four times a year. In addition, there is the annual VAT return, which means you submit your VAT returns once a year, and companies that are eligible for this scheme have a VAT taxable turnover of less than £1.3 million.

Log into your HMRC VAT Online Account to find out when you need to submit your VAT returns and ensure that your payments are up to date.

Exceptions to submitting a VAT return

You will always need to submit a VAT return if you have registered for VAT. However, you can apply for an exemption to MTD for VAT. These exemptions include the following:

• You are exempt from submitting a VAT return online
• Your business is undergoing an insolvency process
• It is not reasonable or practical for you to use the technology required to submit a VAT return digitally

Note: Discover more about VAT and MTB exemptions here.

Step 2: Gather the required VAT information

It is worthwhile to spend time inside your VAT online portal so you know exactly what type of VAT reporting structure you have – monthly, quarterly, annually, specialised – and what deadlines you need to meet. Make these deadlines part and parcel of your business life so you are always ahead of the paperwork.

Work with an accountant or use a professional accounting software solution to manage your paperwork, filing, and VAT returns.

Have all your paperwork and numbers readily available. This includes:

• your total sales for your VAT return period
• the output VAT you have collected on your sales
• your total purchases
• the amount of VAT you can claim back (input VAT).

Ensure you have the right software for the process. You can find a complete list of compatible software here. If you can submit your VAT returns manually, you will receive a paper form from HMRC that you need to complete in full before returning it to them before the deadline.

VAT invoice records

You need to keep very accurate and careful records when you are registered for VAT. These are all the items and services you purchased and sold, including all those items that are:

• zero-rated for VAT 
• subject to reduced VAT
• exempt from VAT

You will also need to keep all your invoices, self-billing agreements, and the details of all your self-billing suppliers. It’s also important that you keep all the invoices you have received – both in digital and paper formats.

According to HMRC, you also need to ensure your invoices include VAT and keep a copy of every invoice you have issued, even ones created in error. You also need to keep all the invoices of purchases you’ve made during your VAT period.

VAT Receipts

In addition to keeping accurate invoicing records, you need to keep:

• all of your debit and credit notes
• details of any goods or services you’ve provided for free or used personally
• your business bank statements
• cheque books
• slips
• till rolls
• cash books

You also need to consider your VAT Account, which is a record of the VAT you have charged and the VAT you have paid. It is a complete breakdown of the flow of VAT through your business and what you need to consider when completing your VAT return.

VAT Rates

The standard rate for VAT is 20% and is applied to the majority of goods and services; however, there are other VAT rates you may need to consider. Some services and goods are charged at a reduced VAT rate of 5%, and others are zero-rated, like most foods.

You can find a relatively rigorous list of different VAT rates on specific services and goods here.

VAT refund eligibility

You are eligible for a refund on the VAT you’ve paid on goods and services for your business. If you are eligible for a refund, you will be reimbursed within a 30-day period after filing your VAT return.

Step 3: Calculate your VAT Return

The amount of VAT you need to pay HMRC is the difference between the VAT you paid on your goods and services as a business and the amount you have issued on your own invoices for the goods and services you have provided. While there are exceptions to being able to claim the total amount of VAT, usually this is the process.

Gross VAT Calculation

Having an accountant and the right software will go a long way towards helping you work out your VAT returns and payments. You can also use our VAT reclaim calculator to help you manage your VAT.

Your gross VAT calculation is the cost of your services with 20% VAT included.

Deductible VAT Calculation

Your deductible VAT is the amount of VAT you can claim back on purchases you’ve made on behalf of your business. You can reclaim your VAT on various business expenses as long as you keep accurate records.

Net VAT Calculation

Your net VAT calculation is the cost of your products and services without the 20% VAT added on. You will use this to determine how much VAT you’ve charged versus how much you will be refunded against your expenses.

Sample VAT Return Calculation

You will need to follow a set process from start to finish when submitting your VAT return online. This include going through the following sections:

• Flat Rate Scheme for the small business
• Cash accounting
• Annual accounting
• Margin schemes
• Payments on account
• Reverse charge accounting

The boxes included in the HMRC return will automatically populate with data from your software, and you can add additional numbers and information based on your paperwork. If you would like to follow a step-by-step guide to completing each box on the HMRC VAT form, you can follow their instructions here.

Step 4: Submit your VAT Return

Set aside time to submit your VAT return, as it requires focus and plenty of documentation. While you have to submit your return every month, you will only need to pay your VAT every three months. Set up calendar reminders so you submit your return and pay your monies owing on time.

How to Submit VAT Returns Online

If you are using accredited software, it will fill in most of the VAT boxes provided by the online VAT return form. You will need to check that the numbers are correct and that you have completed each box properly.

Once you’ve ensured all the boxes have been correctly filled in and that the numbers are accurate, you can submit the form to HMRC. It’s also a good idea to use this time to check if you have any owing returns or payments and to double-check your deadlines so you don’t get penalised.

Penalties for Late or Incorrect VAT Returns

If you have missed your VAT payments, then you will be liable for penalties and interest charges. The system works on points – every time you submit to HMRC late, you will get a penalty point. When you reach a certain number of penalty points, you then get a £200 penalty fee. This fee will then be charged on every additional late submission you make as long as you stay at this threshold. The same applies to incorrect VAT returns.

Blue dot Can Help You With Your VAT Return

If you want some help and insights into how to maximise and optimise your VAT, Blue dot has you covered. Our recent Tax Technology Education series includes insights from different VAT experts about global VAT developments and how to improve your VAT posture by enhancing compliance levels and maximising your VAT recovery. From VAT refund challenges, to using AI to optimise workflows, to finding the hidden VAT, we have a podcast and panel of experts to help you do more with your VAT.

Plus, our VATBox solution is designed to make your life incredibly easy as a VAT-paying business. It will identify and calculate any eligible and qualified VAT spend while helping you optimise your VAT processes, so you stay ahead of the deadlines and on track with your VAT submissions.