What is a VAT return?
A VAT return is the report a VAT-registered business sends HMRC, usually every quarter, showing the VAT charged on sales and the VAT reclaimed on purchases.
What a VAT return means
Most businesses file VAT returns quarterly. The return has nine boxes, of which the most important are:
- Box 1: VAT due on sales, known as output VAT
- Box 4: VAT reclaimed on purchases, known as input VAT
- Box 5: the net amount to pay, or to reclaim
- Boxes 6 and 7: total sales and purchases, excluding VAT
Returns and payments are due one calendar month and seven days after the end of the VAT period. All returns must be filed through software compatible with Making Tax Digital. Smaller businesses can use the annual accounting scheme instead, filing one return a year with instalment payments.
Example
For the quarter to 30 June 2026, a consultancy makes sales of £60,000 plus VAT and purchases of £18,000 plus VAT.
| Box | Amount |
|---|---|
| Box 1: VAT on sales | £12,000 |
| Box 4: VAT on purchases | £3,600 |
| Box 5: VAT to pay | £8,400 |
| Box 6: sales excluding VAT | £60,000 |
| Box 7: purchases excluding VAT | £18,000 |
The return and the £8,400 payment are due by 7 August 2026.
Schemes that change the return
- Flat Rate Scheme: you pay a fixed percentage of gross turnover instead of working out input and output VAT. See the Flat Rate VAT Scheme.
- Cash accounting: you account for VAT when you are paid and when you pay suppliers, rather than on invoice dates, which helps cash flow.
- Annual accounting: one return a year with nine monthly or three quarterly instalments.
Each scheme has turnover limits and conditions, so check eligibility before switching.
Most businesses must use one of these schemes from the start of a VAT period, so plan changes in advance with your accountant.
Why it matters for your business
Late returns build up penalty points; for quarterly filers, reaching four points triggers a £200 penalty, and each further late return another £200. Late payment brings penalties and interest. Errors below the reporting threshold can be corrected on the next return; larger ones must be disclosed to HMRC separately. Cloudkeepers prepares and files VAT returns for clients from their Xero or QuickBooks records.
Common questions
Yes. If you are VAT registered you must file a return for every period, even if all the boxes are zero. Not filing still counts as late and adds penalty points. If you have stopped trading, consider deregistering instead.
Errors up to £10,000, or up to 1% of Box 6 turnover with a ceiling of £50,000, can usually be corrected by adjusting your next return. Larger errors, or deliberate ones, must be reported to HMRC using form VAT652 or the online service.