How to Prepare and Submit a UK VAT Return — Step-by-Step Guide

VAT return deadlines

VAT returns cover a 3-month period. The submission and payment deadline is 1 month and 7 days after the end of the quarter.

Standard quarterly periods:

• Quarter ending 31 March: deadline 7 May
• Quarter ending 30 June: deadline 7 August
• Quarter ending 30 September: deadline 7 November
• Quarter ending 31 December: deadline 7 February

Your specific quarters depend on when you registered. Check your VAT Registration Certificate for your exact periods.

The 9 boxes of a VAT return

Box 1 — VAT due on sales and other outputs The total output VAT you have charged on all standard-rated and reduced-rated supplies during the period. This is the amount you collected from customers.

Box 2 — VAT due from acquisitions from EU member states Post-Brexit, this box applies only to businesses acquiring goods from Northern Ireland or using specific EU acquisition rules. Most UK businesses leave this blank.

Box 3 — Total VAT due Box 1 + Box 2. The total amount of VAT you owe.

Box 4 — VAT reclaimed on purchases and other inputs The total input VAT you can reclaim on business purchases and expenses during the period.

Box 5 — Net VAT payable to or refundable from HMRC Box 3 minus Box 4. If positive, this is what you owe HMRC. If negative, this is a refund.

Box 6 — Total value of sales and outputs (excluding VAT) The net value of all sales, including zero-rated and exempt supplies, excluding VAT.

Box 7 — Total value of purchases and inputs (excluding VAT) The net value of all purchases, including zero-rated and exempt, excluding VAT.

Box 8 — Total value of all EC sales of goods and related costs (excluding VAT) Post-Brexit, this applies to goods dispatched to EU from Northern Ireland. Most UK businesses leave blank.

Box 9 — Total value of all EC purchases of goods (excluding VAT) Same as Box 8 — for most UK businesses, leave blank post-Brexit.

How to prepare in Xero

Xero calculates your VAT return automatically from your transactions. Go to Accounting → VAT Returns and select the quarter to review.

Before finalising:

1. Check all transactions for the period are coded with the correct VAT rate
2. Reconcile your bank account so no transactions are missing
3. Review any transactions coded as "No VAT" — are they genuinely VAT-exempt or zero-rated, or have they been miscoded?
4. Check the bank reconciliation is complete — unreconciled transactions may affect the figures

Once you are satisfied the figures are correct, click Submit to HMRC. Xero sends the return directly through the MTD API. You will receive an HMRC reference number confirming submission.

Common VAT return errors

Claiming VAT on non-business expenses: Entertainment, personal purchases, and client entertainment are generally blocked from input tax recovery. These are common errors.

Miscoding zero-rated as exempt: Zero-rated supplies (like most food and children's clothing) have 0% VAT but count in your turnover figures. Exempt supplies (financial services, insurance) are completely outside VAT. Miscoding affects Boxes 6 and 7.

Missing the deadlines: A first late submission triggers a surcharge (from 2% up to 15% depending on how many times you have been late previously). HMRC's new penalty regime introduced in January 2023 uses points-based penalties for late submissions.

Errors in the previous period: If you discover an error in a previous VAT return, you can correct it in the current return if the net error is below £10,000. Larger errors require a separate error correction form (VAT652).

Cash accounting scheme for VAT

Under the standard (invoice) accounting method, you account for VAT based on the invoice date — you may owe VAT on invoices you haven't been paid yet. Under the cash accounting scheme, you account for VAT only when you receive or make payment.

Cash accounting is available if your taxable turnover is below £1.35 million. It is often beneficial for businesses with slow-paying clients. Set up in Xero under Settings → Financial Settings → VAT.