Your first VAT Return covers the period confirmed by HMRC from your effective VAT registration date. It must include the correct sales, purchases and supported adjustments, be based on complete digital records and normally be submitted through Making Tax Digital compatible software.
The first return can require more preparation than later filings. The VAT period may be longer or shorter than a standard quarter, the business may have traded while waiting for its VAT number and qualifying VAT on purchases made before registration may need to be included.
This guide explains how to confirm the filing period, configure the accounting software, review transactions, calculate pre-registration VAT and submit the return through Making Tax Digital.
What your first VAT Return includes
A VAT Return summarises the VAT charged on sales, VAT incurred on qualifying purchases and other amounts affecting the business’s VAT position.
The return contains nine boxes covering output VAT, input VAT, total sales, total purchases and certain cross-border transactions.
The accounting software generates these figures from the transactions, tax rates and adjustments recorded during the period. The return is therefore only as reliable as the underlying bookkeeping.
A business must normally submit a return for every period allocated by HMRC, including a period in which it has no VAT to pay or reclaim.
Step 1: Confirm the effective registration date
The first step is to confirm the effective date of VAT registration shown in HMRC’s registration correspondence.
This may not be the date on which the application was completed or the date the VAT number arrived. Where compulsory registration applied, the effective date is determined by the relevant registration rules.
The business must account for VAT on qualifying taxable supplies made from that effective date.
HMRC’s VAT registration guidance confirms that the registration information includes the effective date and details of the first return and payment.
Step 2: Check the first VAT period
Do not assume that the first VAT Return covers exactly three calendar months.
HMRC allocates the period when registration is completed. The first period may be shorter or longer than a normal quarter depending on the effective date and return cycle assigned.
Check the start date, end date and filing deadline in the VAT online account before configuring the accounting software.
The dates in the software must agree with HMRC. A return generated for a different period may omit transactions or include activity belonging to a later filing.
Step 3: Confirm the filing and payment deadline
The standard deadline for submitting a VAT Return online is usually one calendar month and seven days after the end of the accounting period.
The payment deadline is normally the same date. The payment must reach HMRC by the deadline, so the business should allow enough time for the selected payment method.
The precise dates should be checked through the VAT online account because different arrangements can apply under annual accounting or other circumstances.
HMRC’s VAT Return deadline guidance explains the normal filing and payment timetable.
Step 4: Add VAT to the Business Tax Account
After receiving the VAT registration number, the business should add VAT to its Business Tax Account if it is not already visible.
The business will need suitable Government Gateway access and its VAT registration information.
The online account can be used to view filing obligations, deadlines, submitted returns, payments and penalties.
Access should be checked early rather than immediately before the filing deadline, when an account or authorisation problem could delay submission.
Step 5: Use MTD-compatible software
VAT-registered businesses must generally keep specified VAT records digitally and submit returns using compatible software.
This can be a complete accounting package such as Xero or QuickBooks, or an appropriate spreadsheet and bridging-software arrangement.
HMRC automatically signs newly registered businesses up for Making Tax Digital unless an exemption applies or has been requested.
HMRC’s compatible VAT software guidance explains the available software options.
Step 6: Authorise the software to communicate with HMRC
The accounting software must be authorised to retrieve VAT obligations and submit the return to HMRC.
The user normally selects the HMRC connection within the VAT settings, signs in using the appropriate Government Gateway credentials and grants permission.
The VAT number, scheme and filing periods in the software should agree with HMRC’s records.
Authorisation may expire periodically and require renewal. Check the connection before completing the return rather than assuming it remains active.
Step 7: Configure the VAT settings correctly
The software should contain the correct VAT registration number, effective date, accounting basis and return frequency.
The business may use standard invoice accounting, cash accounting, the Flat Rate Scheme or another approved arrangement.
The selected software settings must match the scheme actually used. Choosing cash accounting in the software where the business uses invoice accounting can move sales and purchases into the wrong periods.
Businesses using Xero can review our guide to setting up Xero before processing the first return.
Step 8: Record sales from the effective date
All taxable sales made from the effective registration date should be recorded using the correct VAT treatment.
This includes sales made while the business was waiting for its registration certificate and VAT number.
The correct tax point, net amount, VAT rate and gross value should be entered. Credit notes and customer refunds relating to the period must also be included.
Sales before the effective registration date should not normally be treated as VAT-bearing supplies merely because they were entered into the software later.
Step 9: Deal with invoices issued while waiting for the VAT number
A business must account for VAT from its effective registration date even if it has not yet received its VAT number.
It should not issue a formal VAT invoice without the VAT registration number. It may instead issue an interim invoice or payment request reflecting the expected gross charge.
Once the number arrives, the business should provide a valid VAT invoice showing the net amount, VAT and total payable.
The related accounting entries should be checked to ensure the sale is recorded once and the correct VAT appears on the first return.
Step 10: Record purchases and expenses
Purchases made during the first VAT period should be entered using the correct VAT code and supported by appropriate evidence.
A valid VAT invoice or receipt is normally required to reclaim input VAT. A bank statement, delivery note, quotation or pro-forma invoice does not usually provide sufficient evidence by itself.
The supplier must be VAT registered and the document must show the relevant VAT information.
HMRC’s VAT record-keeping guidance explains which documents must be retained and the information required within the VAT account.
Step 11: Check restricted and non-business purchases
Not all VAT paid by a business can be reclaimed.
Input VAT may need to be restricted where a purchase has a private-use element, relates to exempt activity or falls within a specific block on recovery.
VAT on business entertainment provided free to UK business contacts is generally blocked, while employee entertainment can receive different treatment.
The VAT code should therefore follow the nature and use of the purchase rather than being applied automatically to every supplier invoice.
Step 12: Calculate qualifying pre-registration VAT
The first VAT Return may include qualifying VAT on certain purchases made before the effective registration date.
VAT on goods may generally be reclaimed where they were purchased within the previous four years and are still held by the business at registration, or were used to create other goods still held.
VAT on qualifying services may generally be reclaimed where the services were supplied within the six months before registration.
The ordinary recovery conditions still apply. The purchase must relate to the registered business and its taxable activity, and the business should hold valid VAT evidence.
Step 13: Prepare a pre-registration VAT schedule
Pre-registration VAT should not be entered as one unsupported total.
Prepare a schedule showing the supplier, invoice date, description, net amount, VAT amount and reason the item qualifies.
For goods, record how the business confirmed that the items remained on hand at the registration date.
Retain copies of the supporting invoices and ensure the claim does not duplicate any purchase already included through an ordinary software transaction.
Step 14: Complete the bookkeeping for the period
Before generating the first VAT Return, enter all known invoices, bills, receipts, credit notes, refunds and relevant adjustments.
Review draft and unpaid transactions to determine whether they belong in the return under the business’s VAT scheme.
Check company credit cards, cash purchases and costs paid personally by directors or employees.
The return should not be prepared while significant parts of the bookkeeping remain incomplete.
Step 15: Reconcile every financial account
Bank accounts, credit cards and payment platforms should be reconciled to external statements covering the end of the VAT period.
This helps identify missing purchases, duplicated income and payments matched to the wrong invoices or bills.
Payment processors should normally be recorded at the gross sales value, with fees, refunds and net bank transfers shown separately.
Our guide to bank reconciliation in Xero explains why clearing the bank-feed screen alone does not prove that an account is correct.
Step 16: Review the VAT coding
Run a VAT transaction report and review the tax rates used across sales and purchases.
Check large values, unusual suppliers, negative entries and transactions coded with no VAT.
Confirm that zero-rated, exempt, outside-the-scope and reverse-charge transactions have been treated appropriately.
A VAT code should not be changed simply because the resulting liability seems higher or lower than expected.
Step 17: Review the nine VAT Return boxes
Box 1 generally contains VAT due on sales and other outputs, while Box 4 contains VAT reclaimed on purchases and other inputs.
Box 5 shows the net amount payable to HMRC or repayable to the business.
Boxes 6 and 7 generally contain the total values of sales and purchases excluding VAT, subject to the specific VAT Return rules.
Boxes 2, 8 and 9 can contain figures relating to particular cross-border movements and should not be completed merely because the business has purchased something from overseas.
Step 18: Investigate unexpected figures
Compare the VAT liability with the business’s sales and purchasing activity during the period.
A large payment may be reasonable where sales significantly exceed VAT-bearing purchases. A repayment may arise where the business has incurred substantial setup costs or bought equipment.
Unexpected totals can also indicate duplicated transactions, missing sales, incorrect VAT rates or a pre-registration claim entered twice.
The reason for a material movement should be understood before the return is submitted.
Step 19: Add supported VAT adjustments
An adjustment may be needed for pre-registration VAT, partial exemption, conversion from previous software or another amount not already generated from transactions.
The adjustment should be entered in the correct VAT box and supported by a clear calculation.
Where the wider accounting records also need to change, the user should ensure the appropriate ledger entry is created rather than making a box-only adjustment that leaves the VAT control account incorrect.
Our guide to VAT adjustments in Xero explains the difference between amending transactions and entering separate adjustments.
Step 20: Reconcile the VAT control account
The VAT control account should reflect output VAT, recoverable input VAT, adjustments and the resulting liability or repayment.
For the first return, check that the amount shown in Box 5 agrees with the amount transferred to the VAT liability after filing.
Any opening VAT balance entered during a software conversion should be reviewed to ensure it does not duplicate the first return figures.
Unexplained journals or historical balances should be investigated rather than carried into later periods.
Step 21: Obtain approval before filing
The person responsible for the business should review and approve the completed return before submission.
The review should cover the filing period, nine boxes, supporting schedules, major transactions and expected payment or repayment.
Where a bookkeeper prepares the return, the engagement should make clear whether the bookkeeper is authorised to file it or whether the owner or accountant must approve submission.
A copy of the approved calculation and supporting reports should be retained.
Step 22: Submit the first VAT Return through MTD
The return should be filed through the compatible software after the final review is complete.
The user should select the correct open obligation, confirm the declaration and submit the figures to HMRC.
The submission status should then be checked to confirm that HMRC accepted the return.
A saved draft or attempted filing is not the same as a successful submission. The VAT online account can also be checked to confirm receipt.
Step 23: Save the filing evidence
Retain the submitted return, software confirmation, VAT transaction reports, reconciliation and adjustment schedules.
The records should make it possible to trace each material figure back to invoices, receipts and accounting entries.
If HMRC later asks how a first-return figure was calculated, the business should not need to reconstruct the calculation from memory.
Digital VAT records and supporting business documents must be retained for the applicable statutory period.
Step 24: Arrange payment to HMRC
Where Box 5 shows VAT payable, the business must arrange for cleared funds to reach HMRC by the payment deadline.
The correct VAT registration number and payment reference should be used.
Businesses planning to use Direct Debit should confirm that the instruction is active in time for the first payment. A new instruction should not be left until the filing deadline.
The payment should later be matched against the VAT liability in the accounting software rather than recorded as a new expense.
Step 25: Check any VAT repayment
Where the first return produces a repayment, HMRC may review the claim before releasing the money.
Initial repayments can attract additional checks, particularly where the return includes substantial equipment purchases or pre-registration VAT.
The business should retain invoices, bank evidence and supporting schedules and respond promptly to any HMRC request.
The eventual refund should be matched against the VAT amount receivable in the accounting records.
Common first VAT Return mistakes
A common mistake is using the date the VAT number arrived instead of the effective registration date.
Other errors include assuming the first period is a standard quarter, omitting sales raised while waiting for registration and claiming VAT without valid invoices.
Businesses may also include all historic purchases without applying the specific rules for pre-registration goods and services.
Additional problems arise where bank accounts are unreconciled, private-use expenditure is claimed in full or the return is submitted without checking HMRC acceptance.
What happens after the first VAT Return?
Once the first return has been filed, the business should maintain the same digital process for the next period.
Transactions should be recorded regularly, supporting documents collected and financial accounts reconciled throughout the quarter.
The VAT control account should be matched with the submitted return and payment or repayment before the next filing begins.
Any problems found during the first return should be corrected in the workflow rather than repeated in every later quarter.
Getting help with your first VAT Return
Bookkeeping Packages Ltd can review the registration date, accounting software, VAT coding, pre-registration purchases and reconciliation position before the first submission.
Our VAT returns service can include preparation, review, supported adjustments and MTD filing within an agreed engagement.
Where the underlying records are incomplete, our bookkeeping services can include catch-up processing and reconciliation before the return is prepared.
To discuss your first VAT Return and the condition of your records, use the Bookkeeping Packages enquiry form or call 0161 531 0087.
About the Author
Stuart Kerr is Managing Director of Bookkeeping Packages Ltd, an outsourced bookkeeping service supporting UK small businesses and accountancy practices. With over 20 years of bookkeeping experience, Stuart specialises in helping businesses maintain reliable financial records and useful management information.
This article is provided for general information only. Stuart Kerr is a professional bookkeeper, not a tax, legal or regulated financial adviser. Nothing in this article constitutes tax, legal or financial advice or representation during an HMRC enquiry. VAT treatment depends on the circumstances, and advice specific to your position should be obtained from an appropriately qualified professional.