VAT is one of those obligations that is often misunderstood, underestimated, or filed in a rush just before the deadline. But getting it right is not just about staying compliant. It is about staying in control. Understanding how VAT works, when it applies, and what a proper VAT process includes can make a real difference to your business.
In this blog, we break down what VAT means for your business, what is included in a VAT return, and how working with the right support helps you avoid common pitfalls and keep your business running smoothly.
Value Added Tax (VAT) is a tax on the value added to goods and services. Businesses that are VAT registered must charge VAT on their taxable sales and can usually reclaim VAT on their business expenses.
VAT is collected at each stage of the supply chain. If you are VAT registered, you are responsible for collecting VAT on behalf of HMRC and submitting regular VAT returns.
You must register for VAT if your business meets either of the following:
Your VAT taxable turnover exceeds the current registration threshold (currently £85,000) in any 12-month rolling period
You expect your turnover to exceed the threshold in the next 30 days alone
You can also choose to register voluntarily if your turnover is below the threshold, which may be beneficial if you incur a lot of input VAT that you want to reclaim.
Voluntary registration can also give your business a more established image, especially if you deal with other VAT registered businesses.
VAT is charged on most goods and services provided by VAT registered businesses in the UK. However, not everything is treated the same. There are three main VAT rates:
Standard rate (20%) - Applies to most goods and services
Reduced rate (5%) - Applies to certain items like energy bills and children’s car seats
Zero rate (0%) - Applies to goods like most food and children’s clothing
Some items are exempt from VAT altogether, such as postage stamps, financial services, and some forms of education and training.
Understanding what rate applies to your products or services is essential. Charging the wrong rate or reclaiming VAT incorrectly can lead to penalties or repayments to HMRC.
A VAT return is a report submitted to HMRC that summarises how much VAT you have charged and how much you are claiming back.
Each return usually includes:
Total sales and purchases
Amount of VAT charged on sales (output VAT)
Amount of VAT paid on purchases (input VAT)
The difference between the two
If you have charged more VAT than you have paid, you owe the difference to HMRC. If you have paid more VAT than you have charged, you can usually reclaim the difference.
VAT returns are submitted either quarterly or monthly. The deadline is usually one calendar month and seven days after the end of the VAT period. Payments must be made by the same date.
VAT rules are more complex than they appear. Here are some of the most common mistakes we see:
Missing the registration point: Some businesses do not track their turnover regularly and miss the point when they are legally required to register. This can lead to backdated VAT liabilities.
Incorrectly reclaiming VAT: Claiming VAT on non-business expenses or items not eligible for input VAT is a frequent error. HMRC audits often uncover these issues.
Charging VAT on exempt supplies: Applying VAT to exempt goods or services causes confusion for clients and misstatements in your return.
Using the wrong VAT scheme: There are different VAT schemes such as the Flat Rate Scheme or the Cash Accounting Scheme. Using the wrong one can mean paying too much or too little.
Late returns and payments: Delays in submitting VAT returns or making payments can result in surcharges and penalties, even if the error was unintentional.
Poor record keeping: HMRC requires a full digital trail for Making Tax Digital (MTD). Missing receipts, inaccurate ledgers, or using spreadsheets without appropriate software can lead to non-compliance.
VAT services cover more than just filing the return. A good VAT support package includes:
Advice on when to register
VAT registration and deregistration
Guidance on what can and cannot be claimed
Reviewing transactions to apply the correct VAT rates
Preparing and filing VAT returns accurately and on time
Communicating with HMRC where required
Advising on the most suitable VAT scheme
Keeping your VAT records aligned with MTD rules
The goal is not just to file on time, but to ensure your VAT position is correct, defensible, and integrated with the rest of your accounts.
Handling VAT in house can work for some businesses, but many find that outsourcing saves time, improves accuracy, and reduces stress. The rules are detailed, and the penalties for mistakes can be significant.
Here is why outsourcing makes sense:
Saves time: You free up time for your team to focus on customers and operations instead of wrestling with complex VAT rules.
Reduces risk: Your returns are prepared by someone who understands the legislation, so errors are less likely.
Supports cash flow planning: Knowing your VAT liability in advance helps you plan payments and avoid surprises.
Keeps you compliant: A good provider keeps track of deadlines, updates your records, and ensures you meet MTD obligations without added admin.
Advises proactively: If there is a better scheme for your business, or if your sales mix changes, your adviser can help you switch or adjust.
At Allied Financial Group, we take care of your VAT from start to finish. Whether you are registering for the first time or managing regular quarterly submissions, we keep the process clean, accurate, and stress-free.
Our VAT services include:
Reviewing your eligibility and advising on the best time to register
Handling your VAT registration and choosing the right scheme
Preparing and submitting your returns under Making Tax Digital rules
Checking invoices, receipts, and software data for completeness
Providing clear summaries before each return is submitted
Advising on complex transactions or industry-specific issues
Liaising with HMRC on your behalf where needed
Aligning your VAT with your broader accounting and tax strategy
You stay informed and in control while we handle the detail.
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