VAT returns

A VAT return is a summary of the VAT you have charged your customers on sales (output tax) and the VAT you have paid on business purchases (input tax) over a set period. If you charged more than you paid, you pay HMRC the difference. If you paid more than you charged, HMRC owes you.

Behind that simple sum sits most of the real work. Every sales invoice needs the right rate applied, purchase receipts need checking to make sure the VAT on them can actually be reclaimed, and the records have to be kept digitally so the figures can flow into the return through compatible software. HMRC's guidance says you must submit your VAT return using accounting software that is compatible with Making Tax Digital, and all VAT-registered businesses have been required to use MTD for VAT for their first return starting on or after 1 April 2022.

For most businesses the job therefore splits into three parts: keeping tidy, digital records through the quarter, reconciling them at the end, and filing and paying on time.

VAT registration becomes compulsory once taxable turnover passes the threshold, but plenty of smaller businesses register voluntarily too, often because their customers are VAT-registered businesses who can reclaim the VAT anyway. Typical examples include:

• a café or restaurant whose takings have crept over the threshold during a busy summer season
• a builder or decorator who buys a lot of materials and wants to reclaim the VAT on them
• a web designer or consultant working mainly for larger companies
• an online shop selling a mix of standard-rated, reduced-rate and zero-rated goods
• a limited company contractor using the Flat Rate Scheme

What these businesses have in common is that a mistake on the rate, a missed reclaim or a late return costs real money, which is why VAT is often the first job people hand to someone else.

GOV.UK says you must register if your total taxable turnover for the last 12 months goes over £90,000, and you then have 30 days after the end of that month to register. You must also register if you expect your taxable turnover to go over £90,000 in the next 30 days alone. You can ask to deregister if turnover falls below £88,000.

The main rates are 20% for most goods and services, 5% for some items such as children's car seats and home energy, and 0% for things such as most food and children's clothes.

The Flat Rate Scheme lets smaller businesses pay a fixed percentage of turnover instead of working out input and output tax line by line. You can join if your VAT turnover is £150,000 or less (excluding VAT), and you must leave if, on the anniversary of joining, your turnover in the last 12 months was more than £230,000 (including VAT). Businesses that spend very little on goods count as limited cost businesses and pay a higher rate of 16.5%.

You usually send a return every 3 months. The deadline for submitting online is usually one calendar month and 7 days after the end of the period, and that is also the deadline for paying. For VAT accounting periods starting on or after 1 January 2023, each late return earns a penalty point, and once you reach the threshold for your filing frequency you get a £200 penalty. Late payment interest on VAT is currently 7.75% according to HMRC's interest rates page (rate correct at 5 November 2026, and it follows the Bank of England base rate).

Plenty of business owners file their own VAT returns. If your sales are all at one rate, your purchases are straightforward and your bookkeeping software is already set up for Making Tax Digital, the return itself can take very little time each quarter.

People tend to use an accountant or bookkeeper when the picture gets more complicated: mixed rates on sales, imports or overseas customers, a decision about whether the Flat Rate Scheme is worth it, a large one-off purchase, or the first return after registering. Another common trigger is a letter from HMRC about a late return or an error. Bear in mind that even if someone else files for you, the business remains legally responsible for its own tax and you should check the return before it goes in.

If VAT is new to you, it can help to read our page on Making Tax Digital for Income Tax, because the digital record keeping habits are similar.

Before you hand over your VAT, it is worth getting clear answers to a few questions:

• Will you prepare and file every return, or just review figures I send you?
• Which MTD-compatible software do you use, and will I need my own subscription?
• Is the fee fixed per quarter, and what would make it go up?
• Will you tell me when a return is due and what I owe, in time to pay?
• Who supervises you for anti-money laundering purposes? Every accountancy service provider must be supervised by HMRC or a professional body, and trading without registration is a criminal offence.
• Who will actually do the work, and who do I contact if HMRC writes to me?

Ask for the scope of work and the fees in writing so there is no confusion later.

Fees vary with the number of transactions and how clean your records are. As a rough guide only, Zmartly's UK fee guide puts VAT returns at £100 to £250 per quarter (VAT not stated). Local firms set their own fees, so see our guide to accountant costs for more context.