Preparing for your next VAT return

Key Takeaways

• VAT returns must be submitted to HMRC using Making Tax Digital (MTD) compatible software by the relevant deadline.

  
  

• Keeping your bookkeeping up to date throughout the quarter makes preparing your VAT return quicker, easer and more accurate

  
  

• Reviewing your records before submission can help avoid errors, unexpected VAT bills and potential HMRC enquires.

Why preparation matters

Preparing your VAT return is a routine part of running a VAT registered business, but it’s often a task left until the last minute. When deadlines are approaching and paperwork is incomplete, the process can quickly become stressful and increase the risk of mistakes.

Taking the time to prepare throughout the VAT period makes the process much simpler. Keeping your records organised, checking your figures and identifying any missing information before your deadline will help ensure your VAT return is accurate and submitted on time.

All VAT registered businesses are required to submit their VAT returns to HMRC using Making Tax Digital (MTD) compatible software. If you are already familiar with MTD, preparing your bookkeeping throughout the quarter will help ensure your digital records are ready when it's time to submit, if you are unfamiliar with MTD read more here.

What is a VAT return?

A VAT return is a report submitted to the HMRC that summarises the VAT your business has charged on sales and the VAT you have paid on eligible business purchases during a specific accounting period.

Your VAT return includes:

• VAT charged on your sales

• VAT paid on eligible business purchases and expenses

• Your total sales and purchases

• The amount of VAT you need to pay the HMRC or reclaim as a VAT refund

Most VAT registered businesses submit a VAT return every three months using MTD compatible software. Once your return has been submitted, HMRC uses the information provided to calculate whether your business needs to make a VAT payment or is due a refund.

Your VAT checklist

Before submitting your VAT return, make sure you have: 

• Recorded all sales invoices for the VAT period

• Entered all purchase invoices and business expenses

• Checked your VAT records are accurate

• Reconciled your bank accounts where possible

• Confirmed that no invoices have been duplicated or missed

• Reviewed your figures for anything unusual or unexpected

Taking a little extra time to review your records before submitting your VAT return can prevent costly mistakes later. Correcting errors before your return is filed is far easier than making amendments afterwards and can help reduce the likelihood of HMRC raising queries.

Common mistakes to avoid

Even businesses with good financial processes can make mistakes when preparing a VAT return. Here are three of the most common issues to look out for before you submit.

1. Missing purchase invoices

If purchase invoices haven’t been recorded you could miss out on reclaiming VAT you’re entitled to, meaning your business pays more VAT than necessary.

2. Using the wrong VAT rate

Applying an incorrect VAT rate to sales or purchases can result in an inaccurate VAT return and may require amendments after submission. If you are unsure which VAT rate applies to a product or service, you can check the current rates and guidance on the HMRC website before submitting your return. Taking the time to check VAT has been applied correctly can help avoid unnecessary errors.

3. Recording transactions in the wrong VAT period

Transactions should be recorded in the correct VAT period, as recording them too early or late can affect the accuracy of your VAT return and create additional work if corrections are needed. The timing of when a transaction should be recorded depends on the VAT method used by your business. For example, under a standard accrual basis you record invoices when they are issued, while under a cash basis you record invoices when the money is actually paid. 

Regular bookkeeping and a thorough review before submitting your VAT return will help reduce the risk of these common mistakes and give you greater confidence that your figures are accurate.

Understanding your VAT payment

Once you have completed your VAT return, you will be able to see whether your business owes VAT to HMRC or is due a VAT refund. The amount you pay to HMRC is generally the difference between the VAT you have charged on your sales and the VAT you are able to reclaim on eligible business purchases and expenses. If you owe VAT, you can usually pay HMRC via bank transfer, direct debit, or debit card using your VAT registration number as the payment reference. Understanding your VAT position before the deadline allows you to budget accordingly.

For most businesses VAT returns are generally due one calendar month and 7 days after the end of the VAT period. While most businesses submit VAT returns quarterly, your reporting period may differ depending on your VAT scheme, so it is important to keep track of your specific deadlines.

Missing your VAT deadline can result in penalty points under HMRC’s system and can also incur interest. If you are unable to pay your VAT bill in full, don’t ignore it. Submit your return on time and contact HMRC to discuss your options.

Your next steps

Preparing for your VAT return doesn’t need to be stressful. Keeping your bookkeeping organised, reviewing your records before submission and allowing yourself enough time to resolve any issues will make the process much smoother and help you stay compliant with HMRC.

If you’d like support with your bookkeeping or VAT returns, SJC Finance Team is here to help. We can keep your records up to date, prepare your VAT returns accurately and ensure everything is ready for submission through MTD compatible software, giving you confidence that your VAT obligations are taken care of while you focus on running your business.

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