Submission of VAT returns: timing, payment and refunds

How VAT returns are submitted

A VAT Return is a form that tells HMRC how much VAT a business has charged and how much it has paid to other businesses. It is submitted using accounting software compatible with Making Tax Digital, with different routes for a business that has cancelled its VAT registration, is exempt from Making Tax Digital for VAT or is subject to an insolvency procedure, where a paper return or the VAT online account may be used in some cases. ^[1]

Filing VAT sits alongside the annual accounts and company tax as one part of wider accounting support for your business.

A registered business must submit a return even if it has no VAT to pay or reclaim. The software provider gives guidance on how to send the return through its product, and the VAT online account can be used to confirm that HMRC has received it.

How long a business gets to send each return

A VAT Return is usually sent to HMRC every 3 months, and this period is known as the accounting period. The deadline for submitting the return online is usually one calendar month and 7 days after the end of an accounting period. The return must be submitted and the payment must reach HMRC on or before the deadline, even if it falls on a weekend or bank holiday.

Under the VAT Annual Accounting Scheme, the due date is 2 months after the end of the VAT period. ^[2] The VAT online account shows when each return is due.

The figures for each period come from the business's records. The guide to how input and output tax work explains how the amount owed or repaid is worked out, and the guide to the cash accounting scheme covers how that scheme changes the return.

How often VAT is paid

The VAT bill is paid by the deadline shown on the VAT Return, so payments usually follow the same cycle as the returns. There are different deadlines for a business using the Annual Accounting Scheme or VAT payments on account. A VAT-registered business with an annual VAT liability of more than £2.3 million should make payments on account.

A Direct Debit can be set up through the VAT online account, but a business must pay in a different way if it uses an overseas bank account to pay its VAT bill, is an insolvency practitioner, has a VAT payments on account arrangement or is approved to send paper VAT returns. The Direct Debit needs to be set up at least 3 working days before the return is submitted; otherwise the payment is not taken and the first payment is made using another method. Direct Debit cannot be used for VAT payments over £20 million, which need another payment method. ^[3]

Getting a VAT repayment from HMRC

If the input VAT a business can claim is greater than the output VAT it owes, it is due a repayment of VAT. Where box 3 (total VAT due) is less than box 4 (VAT reclaimed), HMRC credits the account and repays the balance, subject to any enquiries it may need to make. ^[2]

HMRC does not use Direct Debit bank account details for VAT repayments. To have repayments paid into a bank account, the registration details are updated in the VAT online account; otherwise HMRC sends a cheque. ^[3]

A business that writes off an invoice as a bad debt must also keep a separate VAT bad debt account.

Rules for reclaiming VAT on business purchases

A business on the VAT Flat Rate Scheme does not normally make a separate claim for input VAT, but can recover VAT on any single purchase of capital goods of £2,000 or more, including VAT, and VAT on stocks and assets on hand at registration. Input VAT cannot be claimed on the return without a proper VAT invoice to support the claim, subject to the rules in VAT Notice 700. If less than the amount due on an invoice is paid, VAT can only be reclaimed on the amount paid, and no more VAT can be claimed than is shown on a valid VAT invoice.

VAT paid before registration can be reclaimed on goods bought within 4 years (where the goods, or goods made from them, are still held) and on services bought within 6 months, but only where the purchases relate to VAT taxable goods or services that the business supplies. ^[4] VAT can only be reclaimed on those purchases for the business now registered for VAT. Some goods and services are outside the VAT system, so VAT on them cannot be charged or reclaimed.

VAT records are kept for at least 6 years, or 10 years if the business is using the VAT One Stop Shop scheme or used the VAT Mini One Stop Shop scheme. ^[4]

Checks before pressing submit

A software or online return cannot be amended after it has been submitted, so the figures are checked before clicking submit; errors found afterwards may be corrected through a later return, within the limits HMRC sets. Complete every box on the return, entering 0.00 where applicable. Under the normal rules, the VAT on the full value of sales is included, even where no VAT was charged to the customer, because whatever price is charged is treated as including VAT; VAT on eligible goods sold under the margin scheme is calculated on the margin, and any other supplies are accounted for in the normal way.

HMRC can charge a penalty of up to 100% of any tax under-stated or over-claimed if an inaccurate return is sent. For VAT accounting periods starting on or after 1 January 2023, a business may receive late submission penalties if it does not submit its VAT return by the due date. ^[5] These rules do not apply to the first VAT return of a newly registered business or the final return after registration is cancelled.