VAT returns can seem straightforward: sales VAT minus purchase VAT equals the amount payable to HMRC, or the amount reclaimable.
In reality, a VAT return is only as accurate as the data behind it.
If the bookkeeping is wrong, the VAT return will be wrong. That could mean paying too much VAT, reclaiming VAT incorrectly, missing valid claims, or creating issues with HMRC later on.
A VAT return normally looks at the VAT charged on sales, the VAT paid on purchases, and the overall net position. Your business either pays the difference to HMRC or receives a refund where input VAT is higher than output VAT. This follows the same basic approach set out in the GMS VAT fact sheet.
Why VAT return checks are important
Before submitting a VAT return, it is important to check the underlying records.
The VAT return should not just be treated as a software-generated report. Accounting software is helpful, but it depends on the transactions being coded correctly.
Common issues include:
- Sales being posted with the wrong VAT rate
- Purchase invoices missing from the records
- VAT being reclaimed without a valid VAT invoice
- Personal or non-business costs being included
- Bank transactions being duplicated or missed
- Credit notes not being matched properly
- Reverse charge VAT being entered incorrectly
- Imports or postponed VAT accounting being missed
- Exempt, zero-rated and outside-the-scope items being confused
HMRC guidance confirms that a VAT return must include total sales and purchases, VAT owed, VAT reclaimable, and any VAT repayable by HMRC. It also warns that VAT must be included on the full value of sales, even where VAT was not separately charged to the customer.
The key areas to check before submitting a VAT return
1. Sales
Start by checking that all sales invoices for the VAT period have been included.
You should review:
- Whether all invoices are dated correctly
- Whether the VAT rate is correct
- Whether any sales are zero-rated, exempt or outside the scope
- Whether credit notes have been included
- Whether any deposits or advance payments need to be accounted for
- Whether sales reconcile to the bank or sales system
This is especially important where a business raises invoices manually, uses more than one sales platform, or receives income through card payments, online marketplaces or cash.
2. Purchases
Purchases should be reviewed carefully because VAT can normally only be reclaimed where there is proper supporting evidence.
HMRC guidance states that input VAT should not be claimed unless there is a proper VAT invoice to support the claim, subject to specific rules.
Checks should include:
- Is there a valid VAT invoice?
- Is the supplier VAT registered?
- Has VAT actually been charged?
- Is the expense wholly business related?
- Has the correct VAT rate been used?
- Has the invoice already been claimed on a previous return?
- Are there any personal items, entertaining costs or non-reclaimable expenses?
A common mistake is assuming VAT can be reclaimed just because a payment has been made. The invoice matters.
3. Bank reconciliation
A VAT return should not be prepared from unreconciled data.
If the bank is not reconciled, transactions may be missing, duplicated or posted to the wrong place.
Before submission, the bank balance in the software should agree to the actual bank statement at the VAT period end date. This gives more confidence that the sales and purchase records are complete.
4. VAT codes
VAT codes are one of the most common causes of errors.
For example:
- Standard-rated sales are usually 20%
- Some items may be reduced rated at 5%
- Some sales may be zero-rated
- Some costs may be exempt
- Some transactions may be outside the scope of VAT
- Some purchases may have no VAT to reclaim
Zero-rated, exempt and outside-the-scope are not the same thing. They can affect the VAT return differently, so the VAT code should match the nature of the transaction.
What each VAT return box means
The UK VAT return has 9 boxes. HMRC’s Making Tax Digital guidance confirms that VAT returns are still based on the same 9-box return structure.
VAT return boxes explained
| Box | What it means | Simple explanation |
|---|---|---|
| Box 1 | VAT due on sales and other outputs | This is the VAT you have charged customers on your sales. It may also include VAT due under certain reverse charge or import VAT rules. |
| Box 2 | VAT due on acquisitions of goods made in Northern Ireland from EU member states | This mainly applies to goods brought into Northern Ireland from the EU. For many GB-based businesses, this box is often nil. |
| Box 3 | Total VAT due | This is Box 1 plus Box 2. It shows the total output VAT due for the period. |
| Box 4 | VAT reclaimed on purchases and other inputs | This is the VAT you are reclaiming on business purchases, subject to the normal VAT rules and having valid evidence. |
| Box 5 | Net VAT to pay to HMRC or reclaim | This is Box 3 minus Box 4. If Box 3 is higher, you pay HMRC. If Box 4 is higher, you may be due a repayment. |
| Box 6 | Total value of sales excluding VAT | This is the net value of sales and other outputs, excluding VAT. |
| Box 7 | Total value of purchases excluding VAT | This is the net value of purchases and expenses, excluding VAT. |
| Box 8 | Supplies of goods from Northern Ireland to EU member states | This applies to certain goods supplied from Northern Ireland to EU member states. Figures here are also included in Box 6. |
| Box 9 | Acquisitions of goods from EU member states into Northern Ireland | This applies to certain goods acquired into Northern Ireland from EU member states. Figures here are also included in Box 7. |
HMRC’s guidance confirms that Box 5 is calculated by deducting Box 4 from Box 3. If Box 3 is greater than Box 4, VAT is payable. If Box 4 is greater than Box 3, the business may be due a repayment, subject to HMRC checks.
A simple VAT return example
A business invoices customers:
Sales: £10,000 plus £2,000 VAT
The business also receives supplier invoices:
Purchases: £3,000 plus £600 VAT
The VAT return would show:
| Description | Amount |
|---|---|
| Output VAT on sales | £2,000 |
| Input VAT on purchases | £600 |
| VAT payable to HMRC | £1,400 |
This is the basic VAT return calculation:
Output VAT minus input VAT = VAT payable or reclaimable
Boxes 6 and 7 are just as important as Boxes 1 and 4
Many people focus only on the VAT payable figure, but Boxes 6 and 7 matter as well.
Box 6 shows sales excluding VAT. Box 7 shows purchases excluding VAT.
These figures can be useful because they may highlight obvious problems. For example:
- Box 6 looks too high or too low compared with expected sales
- Box 7 includes wages, PAYE, dividends or loan repayments
- Purchases have been posted gross instead of net
- Sales have been posted with VAT included twice
- Reverse charge entries have inflated the figures unexpectedly
HMRC guidance says Box 6 should show the total value of business sales and other outputs excluding VAT, and Box 7 should show the total value of purchases and expenses excluding VAT. Certain items should not be included, such as wages, PAYE, loans, dividends and money taken out of the business.
Making Tax Digital does not remove the need to review the return
Most VAT registered businesses must keep digital records and submit VAT returns using compatible software under Making Tax Digital. The software must be capable of keeping records, preparing VAT returns from those records and communicating digitally with HMRC.
However, software does not decide whether every transaction is correct.
The software will process the data it has been given. If the data has been coded incorrectly, the VAT return can still be wrong.
That is why a review is still important before submission.
Practical VAT return checklist
Before submitting a VAT return, consider checking the following:
- Has the bank been reconciled to the VAT period end?
- Have all sales invoices been included?
- Have all purchase invoices and receipts been included?
- Are VAT invoices held for VAT being reclaimed?
- Are any personal expenses included?
- Have credit notes been dealt with correctly?
- Are VAT codes reasonable?
- Have wages, PAYE, dividends and loan repayments been excluded from Box 7?
- Has reverse charge VAT been treated correctly?
- Have imports or postponed VAT accounting been reviewed?
- Does the VAT payable or reclaimable look sensible compared with previous quarters?
A good VAT review is not just about compliance. It also helps spot bookkeeping problems early.
Final thoughts
VAT returns should not be rushed.
The return is only the final result. The real work is in checking the sales, purchases, bank records and VAT treatment behind the figures.
A careful review can reduce the risk of errors, help avoid HMRC issues and give the business owner a clearer picture of what is happening in the business.
At GMS Business Accountants, we help clients review the data behind the VAT return, not just the final figures. The aim is to make sure the return is accurate, supported by proper records and submitted with confidence.
Disclaimer: This blog is for general guidance only and does not constitute personalised VAT advice. VAT rules can be complex and the correct treatment depends on the facts of each business and transaction.
