VAT returns service support helps VAT-registered businesses maintain digital records, review VAT transactions and submit returns to HMRC through Making Tax Digital-compatible software. The work should begin with accurate bookkeeping rather than simply transferring figures into the nine boxes of a VAT Return.
An effective service checks that sales, purchases, bank transactions and relevant VAT adjustments are reflected in the accounting records before submission. It should also identify missing invoices, unusual VAT codes and unreconciled balances requiring investigation.
Bookkeeping Packages Ltd provides VAT Return preparation and submission as part of an agreed bookkeeping service. The precise scope depends on the business’s VAT scheme, return frequency, software, transaction volume and the condition of its underlying records.
What a VAT returns service includes
A VAT returns service can include maintaining digital VAT records, reconciling accounts, reviewing transaction coding, preparing the return and submitting it to HMRC through authorised software.
The provider may also review purchase invoices, sales records, imports, exports, reverse-charge transactions and adjustments relevant to the business.
The engagement should state whether the provider is responsible only for preparing the return or is also authorised to submit it. It should also confirm who approves the final figures and who makes the payment to HMRC.
Specialist VAT advice, formal disclosures, partial-exemption calculations and representation during an HMRC investigation may require separately agreed support from an appropriately qualified VAT adviser.
Making Tax Digital for VAT
VAT-registered businesses must generally maintain specified records digitally and submit VAT Returns using compatible software unless HMRC has confirmed an exemption.
New VAT registrations are normally enrolled into Making Tax Digital automatically. The business should authorise its accounting or bridging software before the first return deadline.
Compatible software creates the VAT Return from the digital records and transmits it to HMRC. The former process of manually entering figures into the ordinary online VAT form is not available to businesses required to use Making Tax Digital.
HMRC’s official Making Tax Digital for VAT guidance explains the current record-keeping and software requirements.
Digital records required for VAT
The business’s digital records should include its name, principal place of business, VAT registration number and any VAT accounting schemes it uses.
For sales, the records should contain the relevant date, net value and rate of VAT charged. Purchase records should contain the date, net value and amount of input VAT claimed.
The software must also maintain the VAT account containing output tax, recoverable input tax and the adjustments used to complete the return.
Original invoices and receipts can still be received on paper, but the specified VAT information must be captured within the digital system. Supporting documents should remain available if HMRC asks the business to substantiate a claim.
Digital links between software systems
A business can use more than one software product, but information moving between them may need to pass through digital links.
Digital links can include application programming interfaces, linked spreadsheets, file imports and formulas connecting cells. Manually copying totals from one system into another may break the required digital chain.
Spreadsheet-based records can remain compliant when suitable bridging software is used. The spreadsheet must still contain the required digital information and be maintained accurately throughout the period.
The provider should understand how information enters the accounting system and confirm that integrations and imports have not omitted or duplicated transactions.
How a VAT Return is prepared
Preparing the return begins with completing the bookkeeping for the VAT period. Sales invoices, supplier purchases, expenses, credit notes and payment-platform transactions should be recorded.
Relevant bank accounts, credit cards and payment platforms should then be reconciled. Missing transactions and unexplained differences should be resolved before the return is finalised.
The VAT codes applied to transactions should be reviewed, particularly where the business has mixed VAT rates, imports, exports, reverse charges or exempt income.
The software-generated return can then be compared with the VAT control accounts and supporting reports. The return should be approved and submitted only after material queries have been resolved.
What the nine VAT Return boxes show
Box 1 normally shows VAT due on sales and other outputs. Box 2 records VAT due on acquisitions of goods into Northern Ireland from EU member states where relevant.
Box 3 totals boxes 1 and 2. Box 4 contains recoverable VAT on purchases and other inputs, subject to the ordinary recovery rules.
Box 5 shows the difference between VAT due and VAT reclaimable. This determines whether the business owes HMRC or expects a repayment.
Boxes 6 and 7 contain the total values of sales and purchases excluding VAT. Boxes 8 and 9 contain certain movements of goods involving Northern Ireland and EU member states.
The provider should investigate figures that differ substantially from previous periods or do not correspond with the business’s known activity.
VAT Return deadlines
Most businesses submit VAT Returns every three months. The ordinary online filing and electronic-payment deadline is one calendar month and seven days after the end of the VAT period.
For example, a VAT quarter ending on 31 March normally has a filing and payment deadline of 7 May.
The return and payment must reach HMRC by the deadline, including where that date falls on a weekend or bank holiday. The business should allow sufficient time for the chosen payment method to clear.
Annual Accounting Scheme users and businesses making payments on account can have different payment arrangements. The dates displayed in the VAT online account should always be checked.
HMRC’s VAT Return deadline guidance explains the ordinary submission and payment timetable.
Nil and repayment returns
A VAT Return must normally be submitted even where the business has no VAT to pay or reclaim.
A nil return filed late can still create a penalty point. The absence of a payment does not remove the filing obligation.
A repayment return should also be prepared carefully. HMRC may review a repayment claim before releasing the money and can request invoices, bank records or explanations supporting the figures.
Submission of the return does not guarantee that the repayment will be issued immediately or that HMRC has accepted the underlying VAT treatment.
Reviewing sales VAT
The business must charge the correct VAT rate on its supplies. Depending on the transaction, a sale may be standard-rated, reduced-rated, zero-rated, exempt or outside the scope of UK VAT.
Zero-rated and exempt sales are not the same. Zero-rated supplies are taxable at zero per cent, while exempt supplies can restrict the amount of purchase VAT the business is entitled to recover.
Sales reports should be reconciled with invoices, till systems, online marketplaces and payment processors. Recording only net bank settlements can omit fees, refunds and part of the underlying turnover.
Where a business is uncertain about the VAT liability of a product or service, it should obtain suitable advice before relying on a code selected within the accounting software.
Checking purchase VAT claims
Input VAT can generally be claimed only where the cost relates to taxable business activity and the business holds appropriate evidence.
A bank transaction alone does not normally show the amount of VAT charged or confirm that the supply was made to the business. A valid VAT invoice or other acceptable evidence should be retained.
Private expenditure must not be included as though it were wholly for the business. Mixed-use costs may require an appropriate restriction.
Purchase VAT can also be restricted for business entertainment, certain motor expenses, exempt activities and other specific categories.
VAT on business entertainment
VAT incurred on entertaining customers and prospective customers is generally blocked from recovery, even where the expenditure has a genuine commercial purpose.
Staff entertainment can receive different treatment where it is provided for employees and meets the relevant conditions.
The bookkeeping should therefore distinguish customer entertainment, staff welfare and ordinary travel or subsistence rather than posting all hospitality costs to one VAT code.
Where an event includes employees, directors, customers and guests, the recoverable proportion may require further review.
Construction domestic reverse charge
The domestic reverse charge can apply to specified construction services supplied between VAT-registered businesses within the Construction Industry Scheme.
Where it applies, the supplier does not charge ordinary VAT. The customer accounts for output VAT and, subject to the recovery rules, claims corresponding input VAT through its return.
The accounting software must use appropriate reverse-charge codes. Applying a standard purchase or sales code can distort several VAT Return boxes.
Invoices should also contain the required reverse-charge wording and information. The business should confirm whether it is an end user or intermediary supplier where this affects the treatment.
Imports, exports and overseas services
International transactions can affect VAT Returns even where no UK VAT appears on the supplier invoice.
Businesses importing goods may use postponed VAT accounting, which records import VAT through the VAT Return using information from the customs declaration and monthly postponed import VAT statement.
Services purchased from overseas suppliers can be subject to the reverse charge. Sales to overseas customers may require evidence supporting their VAT treatment.
Online marketplaces, overseas registrations and movements of goods involving Northern Ireland can create additional obligations. Specialist advice may be required where the transaction chain is unclear.
VAT schemes
The bookkeeping and VAT Return process should reflect any accounting scheme used by the business.
Under cash accounting, output VAT is generally declared when customers pay, while input VAT is generally recovered when suppliers are paid.
The Flat Rate Scheme uses an approved percentage of relevant VAT-inclusive turnover rather than the ordinary output-tax-less-input-tax calculation, subject to specific exceptions.
The Annual Accounting Scheme normally replaces four quarterly returns with one annual return and interim payments.
Retail schemes and margin schemes have their own calculation and record-keeping rules. The provider should confirm which scheme applies before preparing the first return.
VAT Flat Rate Scheme returns
A business using the Flat Rate Scheme still needs to submit returns through Making Tax Digital-compatible software.
The applicable sector rate or limited cost business rate is applied to relevant VAT-inclusive turnover. The limited cost test must be considered for each VAT period.
Purchase VAT is not normally reclaimed separately, although an exception can apply to qualifying capital expenditure goods costing at least £2,000 including VAT.
Our guide to the VAT Flat Rate Scheme explains sector percentages, limited cost status and the comparison with standard VAT accounting.
Partial exemption
A business making both taxable and exempt supplies may be partially exempt. It may not be entitled to recover all VAT incurred on purchases.
Input VAT directly related to taxable activity may be recoverable, while VAT directly related to exempt activity is generally restricted. Residual costs require an appropriate partial-exemption calculation.
A standard method is available, but some businesses agree a special method with HMRC where the standard calculation does not produce a fair result.
Partial exemption can require annual adjustments in addition to calculations for each return period. This work should be included explicitly in the scope or referred to a VAT specialist.
VAT adjustments
A VAT Return may require adjustments for bad debt relief, fuel scale charges, partial exemption, annual adjustments, previous errors or changes in consideration.
The accounting system should record the total for each type of adjustment within the digital VAT account. Supporting calculations can be retained separately where permitted.
Adjustments should not be entered merely to force the VAT control account to agree with the amount expected. Each figure should have a clear reason and supporting record.
Our guide to VAT adjustments in Xero explains why corrections should remain visible and supported by an audit trail.
Correcting previous VAT Return errors
Some non-deliberate VAT errors discovered within the relevant time limit can be corrected through a later return.
HMRC currently permits this method where the net error is £10,000 or less, or between £10,000 and £50,000 while remaining below 1 per cent of the value of sales in the relevant return.
Larger errors and deliberate inaccuracies must be disclosed separately to HMRC. The business should retain details showing when the error was discovered, how it arose and how the correction was calculated.
HMRC’s guidance on correcting VAT Return errors explains the current reporting thresholds and methods.
A material or deliberate error should be reviewed by an appropriately qualified VAT adviser before disclosure.
VAT penalties and interest
Late VAT Returns are covered by HMRC’s points-based penalty system. A business normally receives one point for each late return.
When the business reaches the threshold for its filing frequency, HMRC charges a £200 penalty. Further late submissions while the business remains at the threshold can create additional £200 penalties.
Payment penalties operate separately. The charge can increase when VAT remains unpaid after 15 and 30 days, while late-payment interest begins from the first day the amount is overdue.
Our guide to VAT penalties explains the points thresholds, payment charges, interest and process for removing accumulated points.
Bank reconciliation before VAT filing
Every relevant bank account, credit card and payment platform should be reconciled before the return is submitted.
Reconciliation can identify omitted purchases, duplicated expenses, customer receipts that have not been matched and net settlements recorded incorrectly as turnover.
Our guide to bank reconciliation explains how financial statements should be compared with the accounting records.
Reconciliation does not prove that every VAT code is correct, but it provides stronger assurance that the underlying financial transactions have been captured.
VAT registration and the first return
A business registering for VAT should confirm its effective registration date and first VAT period as soon as HMRC issues the registration details.
The first return can cover an unusual period and may include eligible pre-registration VAT on qualifying goods and services.
Opening balances and earlier transactions need to be entered carefully so the software does not include amounts outside the correct period or duplicate claims.
Our guide explaining how to register for VAT covers the registration test, effective date and records businesses should prepare.
Changing from another VAT provider
A business moving its VAT work should provide the new bookkeeper with access to the accounting system, VAT registration details and recent submitted returns.
The opening review should compare the VAT control account with the most recent return, payments to HMRC and any outstanding liabilities or repayments.
Previous adjustments, Flat Rate Scheme status, partial-exemption calculations and postponed import VAT statements should also be identified.
Changing provider does not reset the VAT records. Historical balances and unresolved errors remain the responsibility of the business and may require a separate correction project.
VAT returns service and monthly bookkeeping
VAT preparation is more efficient when the bookkeeping is maintained throughout the period rather than reconstructed shortly before the deadline.
Regular processing allows missing invoices and unusual transactions to be queried while they remain familiar. It also prevents three months of reconciliation from becoming an urgent deadline task.
Bookkeeping Packages Ltd provides VAT support alongside its wider outsourced bookkeeping service.
Businesses that require only the underlying records can also review our bookkeeping services for UK businesses.
What the business still needs to provide
The business must provide complete sales information, purchase invoices, bank access and explanations for unclear transactions.
Cash takings, personal payments made on behalf of the business and transactions outside the primary bank account must also be disclosed.
The provider cannot determine the correct VAT treatment of a transaction where the underlying invoice, contract or commercial facts have not been supplied.
Queries should be answered before the agreed cut-off date so the return can be reviewed and submitted without unnecessary deadline pressure.
Who approves and pays the VAT Return?
The service agreement should identify who reviews and approves the completed VAT Return.
The authorised provider may submit the return after receiving approval, but the business remains responsible for the completeness and accuracy of the information supplied.
The business normally makes the VAT payment directly to HMRC. The provider can confirm the amount, deadline and reference, but does not usually need authority to control the company’s bank account.
The payment should be checked against the VAT liability in the bookkeeping system and HMRC online account.
Choosing a VAT returns service
A prospective provider should explain whether the quoted service includes bookkeeping, reconciliation, VAT review, submission and communication with HMRC.
The business should ask which VAT schemes and software platforms the provider supports and how unusual transactions are escalated.
It should also confirm responsibility for corrections, partial exemption, international transactions and historical returns.
A low headline fee may cover only transmission of figures already prepared by the business. Providers should therefore be compared using the complete scope rather than the submission price alone.
Starting with our VAT returns service
The onboarding process begins with a review of the VAT registration, accounting software, return periods and condition of the bookkeeping records.
We then agree which accounts and transactions are covered, how documents will be supplied and who will approve the final return.
Where the records are incomplete or behind, catch-up bookkeeping may need to be completed before the ongoing filing service begins.
Bookkeeping Packages Ltd provides a VAT returns service for UK businesses as part of an agreed bookkeeping arrangement.
To discuss your VAT scheme, filing frequency and current 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 investigation. Advice specific to your circumstances should be obtained from an appropriately qualified professional.