Part 3 of a three‑part series on understanding VAT
In the first part of this series, we discussed the mechanics of who pays VAT. The second part discussed when you need to register, whether you might choose to do so voluntarily and the different rates of VAT.
In this final part, we’ll look at what happens after you’re registered: your obligations, the records you need to keep, and how VAT returns are filed.
VAT Deadlines
Most businesses file VAT returns quarterly. The deadline is 1 month and 7 days after the end of the VAT period.
For example: If your VAT quarter runs from January to March, your return and payment are both due by 7 May.
This is also the date on which your VAT payment will be due. You can set up a quarterly direct debit to ensure that the payment is made on time.
Invoices: What Changes After Registration?
From the date you become VAT registered, every invoice you issue must include VAT and show your VAT registration number.
If your registration date is backdated, you must reissue any invoices sent since that date that did not include VAT.
You then have two options:
Option 1: Add VAT on top of the original price
A £100 invoice becomes £120. This is usually the best option if your customer is VAT registered, as they can reclaim the VAT.
Option 2: Keep the total the same and treat VAT as included
A £100 invoice becomes £83.33 + £16.67 VAT. You absorb the £16.67 difference.
If your customer is not VAT registered, you may need to decide which option is more appropriate for the relationship.
It’s also good practice (though not a legal requirement) to let your customers know you’ve become VAT registered so they’re not surprised by any changes in pricing.
Receipts: What You Need to Reclaim VAT
You can reclaim VAT on your business purchases - but only if you have valid evidence. A proper VAT receipt must show:
- Supplier name.
- Supplier VAT number.
- VAT amount charged.
If you don’t have a VAT receipt, you’ll need alternative documentation proving VAT was paid. Without evidence, you cannot reclaim the VAT.
Reclaiming VAT When Some Sales Are Exempt
If you sell goods or services that are VAT exempt, you cannot reclaim VAT on purchases directly related to those exempt sales.
If your business has both exempt and non‑exempt income:
- You can reclaim VAT on purchases linked to your taxable sales.
- You can reclaim a proportion of VAT on shared costs (e.g. rent, utilities, software).
Mileage Claims
You can reclaim VAT on mileage claims, calculated as 1/6 of the mileage amount claimed. But you must have a VAT receipt for fuel covering the period of travel.
This is one of the few exceptions where the receipt does not need to match the exact amount being reclaimed. As I have mentioned previously, VAT is made up of a lot of case law, so there are always quirks which is why having an accountant handle your VAT returns is often worthwhile.
Filing Your VAT Return
HMRC’s Making Tax Digital (MTD) rules mean VAT returns must now be filed digitally, with your records linked directly to the submission.
The simplest way to comply is to use accounting software such as Xero or QuickBooks. These systems:
- Store your invoices and receipts.
- Calculate VAT automatically.
- Connect directly to HMRC.
- Allow you to file your return with minimal stress.
Most businesses file quarterly, though annual filing is available for some.
Record Keeping
You must keep all invoices and receipts that support your VAT return. HMRC may request evidence at any time.
Most accounting software allows you to upload documents and attach them to transactions. This is strongly recommended - it makes answering HMRC queries far easier.
Conclusion
I hope this three‑part series has helped demystify VAT and given you a clear understanding of how it works, when to register, and what your obligations are once you do.
If you need support with VAT registration, record keeping, or filing your returns, feel free to get in touch - we’re always happy to help.
Conclusion
I hope this 3-part series has given you a good understanding of how VAT works. If you need any further support, please don’t hesitate to get in touch.
