VAT Returns

A VAT return is a summary of the VAT you have charged your customers (output tax) and the VAT you have paid on your business purchases (input tax) over a given period. The return calculates the net amount payable to HMRC or repayable to you. Since 2019, virtually all VAT-registered businesses must file VAT returns digitally using Making Tax Digital compatible software.

Filing Frequency

Most businesses file VAT returns quarterly. Each return covers a three-month period, and the filing deadlines are set by HMRC based on your registration date. Monthly returns are available — these are commonly used by businesses that regularly receive VAT repayments (such as exporters) because they speed up the repayment process. The Annual Accounting Scheme allows one return per year with interim payments.

MTD-Compatible Software

VAT returns must be submitted digitally through MTD-compatible software. This includes commercial accounting packages, bridging software that connects spreadsheets to HMRC's API, and HMRC's own MTD service (limited functionality). The software must be able to submit the nine-box VAT return figure directly to HMRC. Digital links between software packages are required for record-keeping.

Payment Deadlines

The VAT return and any payment due must reach HMRC by one calendar month and seven days after the end of the VAT period. For example, a return for the period ending 31 March is due by 7 May. Payment can be made by direct debit, bank transfer, debit or corporate credit card, or at a bank or building society. Direct debit is the most popular method and ensures payment is made on time.

Error Correction

Errors discovered on a submitted VAT return can be corrected in two ways. If the net error is £10,000 or less (or £50,000 or less and 1% of the box 6 figure or less), you can adjust it on the next return. Larger errors must be reported through a separate VAT652 form or by writing to HMRC. Errors involving deliberate inaccuracies or carelessness can trigger penalties.

Repayment Periods

Where input tax exceeds output tax, HMRC will repay the difference. Repayment VAT returns are usually processed within 30 days. Delays can occur if the return is selected for compliance checks, or if HMRC requires additional information. Interest is payable on late repayments in certain circumstances. Businesses expecting regular repayments should consider monthly returns to improve cash flow.

Penalties

Late filing and late payment of VAT attract penalty points. Under the new penalty regime, each late return incurs a point, and after reaching the penalty threshold (which varies by filing frequency), a £200 penalty is charged. Late payment penalties are based on the amount outstanding and the number of days overdue, starting at 2% on day 15 and increasing over time. Reasonable excuse may mitigate penalties.