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Pre-preparation: gather source records
Before starting the return, gather all source records for the VAT period: sales invoices, purchase invoices, import VAT certificates (C79), credit notes issued and received, and bank statements. Confirm that all transactions have been posted to your accounting software and that the VAT period in the software matches the HMRC filing period.
- Check the VAT period start and end dates match your HMRC registration
- Confirm all bank transactions are reconciled for the period
- Identify any transactions posted to the wrong VAT period and correct before calculating
- Note any zero-rated, exempt or outside-scope supplies that affect Box 6 (total sales)
Reconciling output VAT (Box 1)
Output VAT is the tax you have charged to customers. Reconcile the Box 1 figure in your accounting software to your sales ledger for the period. Check that all invoices raised during the period are included, that the correct VAT rate has been applied to each supply, and that any credit notes issued are deducted. Sales to overseas customers may be zero-rated or outside scope — confirm the treatment is correct before including them.
If you use cash accounting, reconcile to receipts rather than invoices issued. Confirm your cash accounting threshold has not been exceeded — it ceases to be available once taxable turnover exceeds £1.6 million.
Reconciling input VAT (Box 4)
Input VAT is the tax you have reclaimed on purchases and expenses. For each invoice from which you are reclaiming VAT, confirm that: the supplier is VAT-registered, the invoice is addressed to your business, it shows the supplier's VAT number, and the purchase relates to a taxable business activity. VAT on cars, business entertainment and certain other categories is blocked — ensure these are excluded from Box 4.
Reconcile the Box 4 figure to your purchase ledger. Check that import VAT claimed matches your C79 certificates from HMRC. If you have partially exempt supplies, confirm that the partial exemption calculation has been applied correctly.
Final checks before submission
Before submitting through your MTD-compatible software, perform these final checks: confirm Box 5 (net VAT payable or reclaimable) is arithmetically correct; confirm Box 6 (total value of sales) and Box 7 (total value of purchases) include net values only, not VAT; review any large or unusual figures against prior periods and document any material variances.
Retain all supporting records for at least six years. HMRC can open a VAT inspection covering any period within six years of the return, and longer in cases of suspected deliberate error. Keep digital records if you are MTD-registered — paper-only records may not satisfy MTD requirements.
Frequently asked questions
What if we discover an error in a previous VAT return?
Errors below £10,000 (net) can be corrected on the next return using Box 1 or Box 4. Errors above £10,000 must be disclosed to HMRC separately using form VAT652. Voluntary disclosure of errors generally results in lower penalties than errors discovered during an inspection.
Can we reclaim VAT on expenses paid by an employee on a personal card?
Yes, provided the purchase relates to a taxable business activity and the employee has a valid VAT receipt addressed to the business (or at minimum showing the supplier's VAT number and the amount of VAT charged). Reclaims on receipts without a visible VAT number carry a risk of challenge.
Funding for UK limited companies
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