VAT GUIDE

How to file a VAT return under Making Tax Digital.

Every VAT-registered business sends HMRC a return, usually every three months, through software that works with Making Tax Digital. This guide walks through what the return asks for, how to send it, when it is due and what happens if something goes wrong.

Figures for the 2026/27 tax year · Last reviewed 21/10/2026

What a VAT return is for

A VAT return tells HMRC two things. How much VAT you charged your customers, and how much VAT you paid on business purchases. The difference is what you owe HMRC, or what HMRC owes you.

The usual cycle is quarterly, and HMRC calls each of those three-month blocks an accounting period. Some businesses use the Annual Accounting Scheme and send one return a year instead.

You must send a return for every period while you are registered, even if you have no VAT to pay or reclaim. A nil return still counts, and so does missing one.

Who has to use Making Tax Digital for VAT

Making Tax Digital, or MTD, is the rule that VAT records are kept digitally and returns are sent from compatible software. HMRC's MTD notice says it covers all VAT-registered businesses. The only way out is an exemption agreed by HMRC.

You can only send a return by post or through your VAT online account if HMRC has given you an exemption. HMRC may agree that using computers or the internet is not reasonable or practical for you, for example because of age, health, disability or where you live, a religious objection to computers, or having no internet access. You apply by calling or writing to HMRC.

Sending paper without an exemption. HMRC can charge a penalty of up to £400 if you send a paper VAT return and you are not exempt. If you have cancelled your VAT registration, the rule flips: final returns go through the VAT online account, not MTD software.

What you need in place first

Compatible software

You need software that can keep digital records and send returns to HMRC. GOV.UK keeps a list of compatible products. If you keep records in a spreadsheet, you can use bridging software to connect it to HMRC.

The first time you file, the software asks you to grant it access to HMRC on your behalf. That authority lasts 18 months, and you can check or withdraw it at any time.

Digital records

MTD is not only about how the return is sent. The records behind it must be digital too. HMRC expects a digital record of:

Your business details: name, main address, VAT number and any VAT schemes you use
Each sale: the time of supply, the value before VAT and the VAT rate charged
Each purchase: the time of supply, the value and the VAT you plan to reclaim

Digital links

If your figures pass through more than one program, the data must move between them by a digital link. HMRC says copying and pasting, or retyping figures by hand, does not count. Exporting a file and importing it into the next program is the usual fix.

The nine boxes on a VAT return

Your software fills these in from your records, but it helps to know what each one means before you press submit.

Box 1: VAT due on your sales and other outputs
Box 2: VAT due on goods brought into Northern Ireland from EU member states
Box 3: total VAT due, which is box 1 plus box 2
Box 4: VAT you are reclaiming on purchases and other inputs
Box 5: net VAT, which is box 3 minus box 4. A positive figure is payable, a negative one is repaid
Box 6: total value of sales, excluding VAT
Box 7: total value of purchases, excluding VAT
Box 8: goods supplied from Northern Ireland to EU member states, excluding VAT
Box 9: goods acquired from EU member states into Northern Ireland, excluding VAT

Boxes 2, 8 and 9 only matter if you trade goods between Northern Ireland and the EU. For most businesses they are 0.00. Any box that does not apply should show 0.00 rather than being left blank.

Worked example (made up). Imagine a sole trader whose quarter runs to 31 March. Her sales carry £4,000 of VAT, so box 1 and box 3 show £4,000. Her purchases carry £1,500 of VAT she can reclaim, so box 4 shows £1,500. Box 5 is £4,000 minus £1,500, which is £2,500 to pay. One calendar month and 7 days after 31 March is 7 May, so the return and the payment are both due by then.

How to file, step by step

The submit button is the last and easiest part. The work is in making sure the figures are right first.

Reconcile your bank accounts to the end of the period, so every payment in and out is recorded
Match receipts and invoices to purchases. You need a valid VAT invoice to reclaim VAT
Check the VAT treatment of unusual items, such as zero-rated, exempt or blocked costs
Run the VAT report in your software and compare it with the previous few quarters. Big swings are worth a second look
Submit the return from the software. It sends the figures straight to HMRC
Check it arrived. Your VAT online account shows whether HMRC has received the return and when payment must clear
Pay, or wait for the repayment if box 5 is negative

If you genuinely cannot give accurate figures, you must ask HMRC for permission before using estimates. You need a good reason.

Deadlines and paying HMRC

The deadline for filing online is usually one calendar month and 7 days after the end of the accounting period. Payment is due by the same date. The deadline does not move if it falls on a weekend or bank holiday, and your payment must reach HMRC's bank account by then, so allow time for it to clear.

Your VAT online account shows your exact due dates. Annual Accounting and VAT payments on account have their own payment dates.

Paying by Direct Debit

Direct Debit is the simplest option. Set it up at least 3 working days before you submit the return, or the first payment will not be collected that way. Once it is set up, HMRC collects the money 3 working days after the payment deadline. If you file late, it is taken 3 days after you file.

What happens if you file or pay late

Late returns: penalty points

Each late return earns one penalty point, including a late nil return. When you reach your threshold, you get a £200 penalty, and another £200 for each further late return while you stay at the threshold.

Annual returns: threshold of 2 points
Quarterly returns: threshold of 4 points
Monthly returns: threshold of 5 points

To clear your points once you are at the threshold, you must file on time for a period of compliance and have no returns outstanding from the previous 24 months. For quarterly filers that period is 12 months, which is four returns. Below the threshold, each point expires on its own after roughly 24 months.

Late payments: penalties and interest

Nothing is charged as a penalty if you pay within 15 days of the deadline. After that, HMRC's guidance sets out:

Days 16 to 30: a first penalty of 3% of the VAT still owed at day 15
Day 31 onwards: the first penalty becomes 3% of what was owed at day 15 plus 3% of what was owed at day 30, and a second penalty builds daily at 10% a year on the unpaid balance

Late payment interest also runs from the first day the payment is overdue until it is paid in full. The rate is the Bank of England base rate plus 4%.

Fixing a mistake on an earlier return

Errors happen. You can correct errors from returns for the previous 4 years. Small ones can go on your next return, by adjusting box 1 for VAT you under-declared or box 4 for VAT you are owed. That route is open if the net error is:

£10,000 or less, or
between £10,000 and £50,000, but less than 1% of your total sales for the period

Anything bigger, or any deliberate error, must be reported to HMRC separately. Be aware that HMRC can charge a penalty of up to 100% of the tax under-stated or over-claimed on an inaccurate return, depending on how the error came about.

Making the quarter end easier

Most late or wrong VAT returns trace back to the same cause. The books were left until the deadline, and then a quarter of receipts, invoices and bank lines had to be sorted in a few days.

If transactions are recorded and matched as they happen, the VAT report is close to final on the last day of the quarter. Missing invoices have already been chased, odd items have already been queried, and filing becomes a short review rather than a scramble.