Once you’ve registered for VAT, you’ll need to fill in and submit quarterly (or monthly if you are a repayment trader and request this) VAT returns to HMRC in order to stay compliant and pay the correct amount of VAT.
Our VAT experts from FSB Tax Investigation Protection answer your commonly asked questions to make the process easier.
When are VAT returns due?
If you’re a VAT-registered business you must report to HMRC the amount of VAT on sales you’ve made and the amount of (recoverable) VAT you’ve been invoiced on costs. This is done through your VAT return.
Most businesses need to submit (quarterly) VAT returns every three months, but which 3 months will differ depending on when you registered and whether you requested a particular stagger. You may also request monthly returns if you are expecting to be a repayment trader.
You generally have a month and 7 days from the end of your VAT return period to submit your VAT return and pay over any VAT due to HMRC. You can find your due dates on your VAT online account.
Step-by-step: Preparing for a VAT return
There are a few steps in the process of submitting your return each quarter – we’ve broken it down into three simple steps. Your accountant can support you with this if you’re unsure or, as an FSB member, you can call our team of VAT specialists for advice.
1. Gather your records and calculate your claim
To submit your return, you’ll need some figures to hand, including:
- Your total sales
- Output VAT (the VAT collected on your sales)
- Your total purchases
- Input VAT (the VAT you can claim back)
You won’t need to submit VAT invoices, but HMRC may ask to see these later down the line, so stay organised and have these ready just in case.
What to report as output VAT
✔️ VAT on sales subject to reduced or standard-rated VAT that have a UK place of supply*
✔️ VAT on sales with a tax point during this VAT return period (a tax point is generally triggered by the earlier of: receipt of payment, issue of a VAT invoice, completion / delivery of the product)
✔️ VAT on reverse charge purchases (for example services bought from non-UK suppliers that would have UK VAT on them if they’d been bought from a UK VAT registered supplier and certain construction services)
✔️ VAT on deemed supplies (for example where a business gives away business assets or goods, or puts a business asset to private use)
❌ VAT on sales that are outside the scope of, or exempt from, UK VAT, although the net sales value should still be included in Box 6 of your VAT return
❌ foreign VAT (you may need to VAT register in a different country to deal with this)
❌ VAT on income that is not in return for a supply of goods or services (e.g. an insurance pay-out, receipt of certain grants, receipt of donations). This income would not go in Box 6 either
* The place of supply rules can be complex, but as a general rule, all sales of goods that remain in the UK, and all sales of services to UK-based customer (plus some other services, particulalry those made business to consumer) will have a UK place of supply.
What to claim as input VAT
✔️ VAT on goods and services purchased or imported for taxable (zero-rated, reduced-rated and standard-rated) business use, like stock, stationery and tools
✔️ VAT paid on goods or services that you sell outside the UK but which would be zero, reduced or standard-rated if they were made in the UK)
✔️ VAT on unpaid customer debts (find out more about VAT Bad Debt Relief)
✔️ VAT on costs incurred pre-registration and pre-incorporation (subject to specifics)
❌ goods and services purchased only for personal, private or other non-business use (e.g. most cars)
❌ goods and services purchased to make VAT-exempt supplies (subject to specifics)
❌ business entertainment costs
❌ costs that your business did not receive / purchase
❌ costs you do not hold valid evidence for yet (e.g. valid UK VAT invoice)
❌ foreign VAT and UK VAT that has been charged incorrectly (e.g. supplier charges you 20% instead of 5% VAT)
Purchases before registration
You can only reclaim VAT on purchases for the entity now registered for VAT and which relate to that business’ taxable sales of goods or services.
From your date of registration, you have time limits on backdating VAT claims. You have six months for services and four years for goods (e.g. stock and assets), but you must still have any goods on hand at your date of registration (including if they were used to make other goods you still have) and the costs must not be direct cost components of your pre-registration sales.
What if I use something for both business and non-business purposes?
If you use something for both business and non-business use (e.g. private or certain charitable activities), for example a laptop, you can reclaim the business portion of that. You’ll have to work out what percentage is business related and be able to justify that to HMRC. So, if you use the laptop 50% of the time for business, you can claim this part back as long as you can show your working out.
When a typical business buys a car that is capable of being used privately, it cannot recover any VAT. If it leases the car, it can only claim up to 50% of the VAT.
What if I use something partly or wholly for exempt purposes?
VAT registered businesses that make both exempt and other sales (referred to as partially exempt businesses) will usually not be able to recover all VAT on costs incurred. VAT on costs relating wholly and exclusively to exempt income will not be recoverable at all and VAT on costs that relate to both exempt and taxable income will be recoverable in part; there are special rules on how to work out this part. The exception to this is for partly exempt businesses that are below the partial exemption deminimis limits; these businesses can recover all their VAT in the normal way ‘as if’ they had no exempt income.
2. Comply with Making Tax Digital rules
You need to use software that is compatible with Making Tax Digital. Since April 2022, VAT-registered businesses have been required by law to follow the new rules. You're no longer able to submit your VAT return using your existing online account. You need to use compatible software for your VAT returns. You may face penalties from HMRC if you don’t file using MTD compatible software.
Don’t worry – at the Federation of Small Businesses, we're supporting small businesses and the self-employed to get to grips with new Making Tax Digital rules and stay compliant through our FSB Making Tax Digital app.
HMRC has detailed guidance on how to fill in each section of your return form.
3. Pay your VAT bill
Payment return
Most businesses will usually end up with a VAT bill if you’re selling more than you buy. You’ll have a month and seven days to pay this. You can pay manually or through direct debit, but either way make sure you do this on time to avoid any penalties.
For example, if you collected £1,000 in VAT and paid £300 in VAT, you’d owe HMRC £700.
Repayment return
Paid more VAT than you collected? HMRC will refund you after you submit your return, meaning you won’t have a bill.
For example, if you owe £1,000 in VAT on sales and can recover £1,100 in VAT on purchases, you’d get a £100 refund from HMRC.
If this is regularly the case, you may benefit from being on monthly VAT returns, so consider whether the cash-flow advantage will outweigh any extra admin and ask HMRC to move to monthly returns.