7 VAT Return Mistakes Small Businesses Should Avoid

VAT returns can become complicated when a business has a large number of transactions, different VAT treatments or incomplete financial records. Even relatively small mistakes can lead to incorrect VAT figures, additional administration and, in some circumstances, penalties or interest.

At Thomas Nock Martin, we help businesses manage their tax obligations and maintain accurate financial records. Having reliable bookkeeping and appropriate checks in place can make VAT reporting considerably easier.

Here are seven common VAT return mistakes UK businesses should watch for.

1. Entering Incorrect VAT Figures

One of the simplest mistakes is entering the wrong figures on a VAT return.

Errors can occur when transactions are duplicated, omitted or allocated incorrectly. Problems may also arise when the figures in accounting software have not been checked against underlying records.

Before submitting a return, businesses should review the figures and investigate anything that appears unusual.

Regular reconciliation can help identify problems before they reach the final VAT return.

2. Claiming VAT Without Suitable Records

Businesses should maintain appropriate records to support the VAT they report and reclaim.

Missing invoices and incomplete purchase records can create problems when calculating input VAT.

A consistent system for storing invoices and receipts makes it easier to find the evidence required when preparing a return. Digital bookkeeping systems can also reduce the risk of documents becoming lost.

At Thomas Nock Martin, we recommend keeping records organised throughout the VAT period rather than gathering everything immediately before the deadline.

3. Applying the Wrong VAT Treatment

Not every transaction is treated in the same way for VAT purposes.

Depending on the goods or services involved, different VAT rules and rates can apply. There is also an important distinction between zero-rated, reduced-rated and exempt supplies.

Applying the wrong VAT treatment can result in incorrect figures being reported to HMRC.

Where the VAT position of a transaction is unclear, obtaining professional advice before submitting the return can help prevent errors.

4. Failing to Reconcile VAT Records

Reconciliation is an important part of accurate VAT reporting.

Businesses should compare their VAT records with relevant accounting information before submitting a return.

This can help identify:

Missing transactions.

Duplicate entries.

Incorrect VAT codes.

Unusual balances.

Differences between accounting and VAT records.

Regular reconciliation also makes errors easier to investigate because the transactions are still relatively recent.

5. Missing VAT Return Deadlines

Late VAT returns can result in penalty points under HMRC’s current late-submission penalty system. Once the relevant points threshold is reached, a financial penalty can apply.

Late VAT payments are dealt with separately and may result in penalties and interest.

Businesses should therefore keep track of both their submission deadline and payment deadline rather than assuming filing the return completes the process.

Maintaining an organised VAT calendar can help reduce the risk of deadlines being missed.

6. Poor Digital Record Keeping

Making Tax Digital for VAT means VAT-registered businesses generally need to keep specified records digitally and use compatible software to submit VAT returns, unless an exemption applies.

Poor digital bookkeeping can lead to inaccurate information flowing through to the VAT return.

Businesses should ensure transactions are entered consistently, VAT codes are applied correctly and accounting records are reviewed regularly.

Digital systems can make VAT reporting easier, but software still depends on accurate information being entered in the first place.

7. Failing to Correct VAT Errors

Discovering an error does not necessarily mean it can be ignored until the next return.

HMRC has specific procedures for correcting VAT errors. How an error should be corrected depends on factors including its value and circumstances.

Under current HMRC guidance, qualifying net errors of £10,000 or less can normally be adjusted through the next VAT return. Errors between £10,000 and £50,000 can also potentially be adjusted this way when they are less than 1% of total sales. Larger errors and deliberate errors must be reported separately to HMRC.

Businesses should also keep details explaining the error and how it was corrected.

How Thomas Nock Martin Can Help

VAT reporting becomes easier when accurate bookkeeping, reconciliation and regular financial reviews are already in place.

At Thomas Nock Martin, we help businesses understand their tax responsibilities and maintain the financial information needed for accurate reporting.

Professional accountancy support can help identify potential errors, improve record keeping and ensure VAT information is properly reviewed before submission.

If you are concerned about your VAT records or have identified a possible error, dealing with the issue early can prevent it from becoming more complicated.

Speak to our tax team to discuss professional support with your business’s VAT and wider tax obligations.

FAQs

What are the most common VAT return mistakes?

Common mistakes include incorrect VAT figures, missing invoices, using the wrong VAT treatment, poor reconciliation, missed deadlines and inaccurate digital records.

What happens if a VAT return is wrong?

The appropriate action depends on the type and size of the error. HMRC allows some errors to be corrected through a later VAT return, while larger or deliberate errors must be reported separately. Errors can potentially result in penalties or interest depending on the circumstances.

How can I correct a VAT error?

Certain qualifying errors can be adjusted on a subsequent VAT return. Errors exceeding HMRC’s thresholds and deliberate inaccuracies need to be disclosed separately. Businesses should keep records explaining the error and correction.

Do I need digital VAT records?

VAT-registered businesses are generally required to follow Making Tax Digital for VAT requirements unless an exemption applies. This includes maintaining specified digital records and using compatible software.

Can an accountant help with VAT returns?

Yes. Professional accountancy support can help businesses maintain accurate records, reconcile VAT information, identify potential errors and understand the VAT treatment of transactions. Thomas Nock Martin can provide support based on the circumstances of your business.