Submitting a VAT return is a routine but important obligation for every VAT registered business. Get it right consistently and your compliance record with HMRC stays clean. Get it wrong and you risk penalties, interest charges and unnecessary scrutiny. This guide explains how VAT returns work under Making Tax Digital and walks you through the submission process step by step.
What Is Making Tax Digital for VAT?
Making Tax Digital, commonly referred to as MTD, is HMRC's initiative to modernise the UK tax system by requiring businesses to keep digital records and submit returns using compatible software. MTD for VAT has been mandatory for all VAT registered businesses since April 2022, regardless of turnover.
This means you can no longer submit your VAT return by logging into the old HMRC online portal and filling in boxes manually. You must use MTD compatible software that connects directly to HMRC's systems. At Affinity Associates Isaacs & Co, all our clients are set up on cloud accounting software that is fully MTD compliant.
What Software Do You Need for MTD?
You need software that is recognised by HMRC as MTD compatible. The most widely used options include Xero, QuickBooks and Sage. These platforms connect to HMRC's API and allow you to submit VAT returns directly from within the software, satisfying both the digital record keeping requirement and the digital submission requirement.
If your accounting is currently done on spreadsheets, you can use bridging software to connect your spreadsheet data to HMRC's systems for MTD purposes. However, moving to a fully integrated cloud accounting platform is generally more efficient and reduces the risk of errors.
When Is My VAT Return Due?
For most businesses on standard quarterly VAT returns, your return and any VAT payment are due one calendar month and seven days after the end of your VAT quarter. For example, if your VAT quarter ends on 31 March, your return and payment are due by 7 May.
Your exact VAT return dates will be shown on your VAT registration certificate and in your HMRC online account. It is important to diarise these dates and build them into your financial routine, so you never miss a deadline.
How to Submit a VAT Return Step by Step
- Ensure your bookkeeping is up to date. Before you can prepare your VAT return, all transactions for the quarter need to be recorded and reconciled. This means all sales invoices, purchase invoices and bank transactions should be entered and matched.
- Review your VAT figures. Most cloud accounting platforms generate a VAT report that shows your output VAT (VAT charged on sales), input VAT (VAT paid on purchases) and the net amount due to or from HMRC. Review these figures carefully before submitting.
- Check for common errors. Look for transactions posted to the wrong VAT code, expenses that are not VAT reclaimable, and any adjustments needed for exempt or partially exempt supplies.
- Submit through your MTD compatible software. Once you are satisfied the figures are correct, submit the return directly to HMRC through your accounting software. You will receive a confirmation that the submission has been received.
- Pay any VAT owed. If your return shows a payment due, make sure it reaches HMRC by the deadline. Bank transfers typically take one working day, so do not leave payment until the last minute.
What Are the Most Common VAT Return Mistakes?
- Reclaiming VAT on non-business expenses. You can only reclaim VAT on purchases that are for business use. Personal expenditure should never be included in your VAT return.
- Using the wrong VAT rates. Different goods and services are subject to different VAT rates including 20%, 5% and 0%. Applying the wrong rate can result in errors in both your output and input VAT figures.
- Forgetting to account for VAT on all sales. If you issue invoices without VAT codes or forget to allocate certain income streams, your output VAT figure will be understated.
- Missing the submission deadline. HMRC charges a default surcharge or late submission penalty for returns that are not filed and paid on time.
- Poor reconciliation. Not reconciling your VAT account to your bank statement before submission is a common source of errors that can lead to under or over payment.
How Affinity Associates Isaacs & Co Can Help
Managing VAT returns accurately and on time is something Affinity Associates Isaacs & Co handles for many of our clients. Whether you need us to take care of your VAT returns entirely, review your submissions before you file or simply advise on a specific VAT question, we are here to help. Our team is experienced in all common VAT schemes and cloud accounting platforms, ensuring your VAT compliance is always in good order.