Filing Your First VAT Return: A Step-by-Step Guide

If your business has recently registered for VAT — or is approaching the threshold — filing your first VAT return can seem daunting. The good news is that once you understand the process, it becomes routine. This guide walks you through everything you need to know, from when to register through to submitting your return via Making Tax Digital.

When Must You Register for VAT?

You must register for VAT if:

• Your taxable turnover exceeds £90,000 in any rolling 12-month period (the current threshold as of 2024/25)
• You expect your turnover to exceed £90,000 in the next 30 days alone
• You receive goods from the EU worth more than £90,000

You can voluntarily register even if your turnover is below the threshold. This makes sense if:

• Most of your customers are VAT-registered businesses (they can reclaim the VAT you charge)
• You have significant input VAT to reclaim (e.g., large purchases or capital investment)
• You want to appear more established and professional

Important: Once registered, you must charge VAT on all applicable sales and file quarterly returns — even if your turnover drops below the threshold later.

Choosing the Right VAT Scheme

Before filing your first return, make sure you are on the right scheme. HMRC offers several options:

Standard VAT Accounting

The default method. You account for VAT based on the date of your invoices, regardless of when payment is received or made. You charge VAT on sales (output VAT), reclaim VAT on purchases (input VAT), and pay the difference to HMRC.

Flat Rate Scheme (FRS)

Designed for businesses with turnover under £150,000. Instead of tracking input and output VAT separately, you pay a fixed percentage of your gross turnover to HMRC. The percentage varies by industry (ranging from 4% to 16.5%).

Pros: Simpler record-keeping, potentially keeps more VAT if your expenses are low. Cons: You cannot reclaim input VAT on most purchases (except capital assets over £2,000).

Cash Accounting Scheme

You account for VAT based on when you receive and make payments, not when invoices are issued. This helps cash flow if your customers are slow to pay. Available for businesses with taxable turnover under £1.35 million.

Annual Accounting Scheme

Instead of quarterly returns, you submit one annual return and make interim payments throughout the year. Available for businesses with turnover under £1.35 million. Useful for reducing admin, but you must be disciplined about the interim payments.

What to Include on Your VAT Return

A VAT return has nine boxes. Here is what goes in each:

Box	Description
Box 1	VAT due on sales and other outputs
Box 2	VAT due on acquisitions from EU member states
Box 3	Total VAT due (Box 1 + Box 2)
Box 4	VAT reclaimed on purchases and other inputs
Box 5	Net VAT to pay or reclaim (Box 3 - Box 4)
Box 6	Total value of sales (excluding VAT)
Box 7	Total value of purchases (excluding VAT)
Box 8	Total value of supplies to EU member states (excluding VAT)
Box 9	Total value of acquisitions from EU member states (excluding VAT)

Box 5 is the key figure — if it is positive, you owe HMRC. If it is negative, HMRC owes you a refund.

Step-by-Step: Filing Your Return

Step 1: Gather Your Records

Before you begin, ensure you have:

• All sales invoices issued during the VAT period
• All purchase invoices and receipts
• Your bank statements reconciled with your accounting records
• Any credit notes issued or received
• Records of any bad debts written off

Step 2: Calculate Your Output VAT (Box 1)

Add up all the VAT you have charged on your sales during the period. This includes:

• Standard-rated sales (20% VAT)
• Reduced-rated sales (5% VAT)
• Any VAT on supplies to yourself (e.g., goods taken for personal use)

Step 3: Calculate Your Input VAT (Box 4)

Add up all the VAT you have been charged on your business purchases. You can reclaim VAT on:

• Stock and materials
• Business services (accountancy, legal, marketing)
• Equipment and tools
• Utility bills (business proportion)
• Business travel expenses

You cannot reclaim VAT on:

• Business entertainment
• Non-business purchases
• Goods and services not used for your taxable supplies

Step 4: Submit via Making Tax Digital

Since April 2022, all VAT-registered businesses must use Making Tax Digital (MTD) compatible software to keep digital records and submit returns. You cannot submit VAT returns directly through the HMRC website anymore.

Popular MTD-compatible software includes Xero, QuickBooks, FreeAgent, and Sage. Your software will submit the return directly to HMRC.

Step 5: Pay What You Owe

Payment is due one month and 7 days after the end of your VAT period (if paying by Direct Debit, you get an extra 3 days).

For example, if your VAT quarter ends 31 March, payment is due by 7 May.

Common Mistakes to Avoid

• Claiming input VAT without valid invoices — you need a proper VAT invoice showing the supplier's VAT number
• Including VAT on exempt supplies — some goods and services are VAT-exempt (e.g., insurance, education, health services)
• Forgetting reverse charge supplies — some B2B services require you to account for VAT under the reverse charge mechanism
• Missing the filing deadline — even if you owe nothing, you must still file
• Not reconciling your figures — always cross-check your VAT return against your bank statements and accounting records
• Reclaiming VAT on blocked items — business entertainment, cars (unless a taxi or driving school), and non-business items

VAT Return Deadlines

VAT returns are usually submitted quarterly. Your specific dates depend on your VAT registration date, but common quarters are:

Quarter Ending	Filing & Payment Deadline
31 March	7 May
30 June	7 August
30 September	7 November
31 December	7 February

HMRC applies a default surcharge for late submissions, starting at 2% of the VAT owed and escalating to 15% for repeat offenders.

How TaxDocs Can Help

Preparing your VAT documentation accurately is critical to avoiding penalties and ensuring you reclaim everything you are owed. TaxDocs generates professionally formatted, jurisdiction-specific tax documents that simplify VAT compliance. Upload your financial data and let TaxDocs produce clean, accurate documents ready for your records or your accountant.

Summary Checklist

• Confirm your VAT scheme is appropriate for your business
• Gather all sales and purchase invoices for the period
• Reconcile your records with bank statements
• Calculate output VAT (what you charged) and input VAT (what you paid)
• Submit via MTD-compatible software before the deadline
• Pay any VAT owed by the payment deadline
• Keep all records for at least 6 years

Filing your first VAT return is a learning curve, but with good systems in place, it quickly becomes straightforward.

This article is for informational purposes only and does not constitute tax advice. Always consult a qualified accountant for advice specific to your circumstances.