What Does a Fully Compliant VAT Return Look Like?

Introduction

A fully compliant VAT return in the UK must accurately report taxable sales, purchases, and VAT due or reclaimable. As of 2025, businesses must file returns digitally through MTD-compatible software, apply the correct VAT scheme, and retain proper records. Here’s what full compliance looks like.

What Is a VAT Return and Who Needs to File One in the UK?

What is a VAT Return?
A VAT return is a report submitted to HMRC that outlines:

Total sales and purchases
VAT owed to HMRC
VAT reclaimable on business purchases
VAT refund claimed (if applicable)

Who must file a VAT return?

You must file a VAT return if:

You’re VAT-registered
Your taxable turnover exceeds £90,000 (as of April 2025 threshold update)
You’ve voluntarily registered for VAT
You're using a special VAT scheme (e.g., Flat Rate, Margin, etc.)

What Does a Fully Compliant VAT Return Include?

To be compliant, your VAT return must correctly report:

Section	What It Should Contain
Output Tax	Total VAT on sales to UK and overseas customers
Input Tax	VAT you can reclaim on UK business purchases
Adjustments	For bad debts, partial exemption, or corrections
VAT Due/Refund	Net VAT owed or reclaimable from HMRC
Additional Notes	For specific schemes like EC Sales Lists or reverse charge on services

How Has VAT Compliance Changed with MTD for VAT?

What is Making Tax Digital (MTD) for VAT?
It is HMRC’s initiative requiring businesses to:

Keep digital VAT records
Use MTD-compatible software (e.g., Xero, QuickBooks, Sage)
Submit returns directly through the software

What happens if I don’t comply with MTD?

As of 2025, non-compliance can trigger:

Late submission penalties: £200 per return
Points-based penalties leading to fines
Risk of audits or deregistration

Veritus Consultancy helps clients set up and maintain compliant MTD systems.

What Are the Most Common Errors That Cause VAT Returns to Be Non-Compliant?

Incorrect VAT rates applied (e.g., standard vs zero-rated)
Failure to record EU or international sales properly
Using cash basis when accruals are required
Not adjusting for partial exemption
Late filings and missed deadlines

Which VAT Schemes Affect Return Compliance?

Common VAT schemes used by UK businesses:

Scheme Type	Best For	Key Compliance Notes
Standard VAT	Most businesses	Requires full input/output VAT tracking
Flat Rate Scheme	Small businesses (under £150k)	VAT is paid as a % of turnover; limited reclaims
Margin Scheme	Second-hand goods, art, antiques	VAT only on the profit margin
Annual Accounting	Seasonal cash flow or simplicity	One return per year; advance payments

Make sure your return matches the scheme rules and includes necessary adjustments.

What Records Do I Need to Keep to Support a Compliant VAT Return?

As per HMRC 2025 guidance, you must retain for 6 years:

Digital records of sales and purchases
Copies of all invoices (issued and received)
Credit notes and adjustments
VAT account (showing summary of output/input VAT)
Import/export documentation (for overseas trade)

Digital Record Tip: Cloud accounting tools help automate this process and reduce error risks.

How Do You Fix Errors in Previous VAT Returns?

For Errors Under £10,000:

Adjust in your next return (Box 1 or Box 4)
Include an explanation in your records

For Errors Over £10,000 or deliberate errors:

Submit a VAT652 form
HMRC may initiate a compliance check

Veritus Consultancy can guide businesses through HMRC disclosures and avoid penalties.

How Can a Professional Firm Like Veritus Help Ensure VAT Compliance?

A VAT-specialised advisory partner can:

Identify the correct VAT scheme for your business
Set up and maintain MTD-compliant systems
Handle partial exemption, reverse charges, EC sales
Review records to ensure accuracy before submission
Liaise with HMRC in case of disputes or errors

FAQs About VAT Returns in the UK

Q1. How often do I need to file a VAT return?
Usually quarterly, but some businesses use monthly or annual accounting depending on their cash flow and VAT scheme.

Q2. Can I still file VAT returns manually in 2025?
No. MTD mandates digital filing for all VAT-registered businesses unless you have an exemption approved by HMRC.

Q3. What are the VAT penalties in 2025 for late filing?
Penalties start at £200 per missed return, with additional fines for repeated offences under HMRC’s points-based system.

Q4. Do I need to file a VAT return if I made no sales?
Yes. A “nil return” is still legally required if you're VAT registered, even with no activity.

Q5. How soon do I get VAT refunds after filing?
Typically, within 10 working days, but HMRC may delay if they initiate a review.

Final Thoughts – What Does HMRC Expect in 2025?

In 2025, VAT compliance means more than just filing on time. HMRC expects:

Accuracy in classification, rates, and adjustments
Full digital record-keeping and audit trails
Correct application of special schemes
Prompt disclosures of any errors

Neglecting these puts your business at risk of fines or reputational damage.

Need clarity on your VAT obligations or struggling with compliance under MTD?
Speak to a VAT expert at Veritus Consultancy for tailored advice and a no-obligation consultation.

What Does a Fully Compliant VAT Return Look Like? A Practical Guide for UK Businesses in 2025