What’s Included in a VAT Return?

A VAT return shows the VAT your business has charged on sales, the VAT it has paid on eligible purchases, and the amount ultimately payable to or reclaimable from HMRC.

If you are VAT registered, your return normally includes:

• total sales
• total purchases
• VAT due on sales and other outputs
• VAT you can reclaim on eligible business purchases
• the final amount payable to HMRC or reclaimable from HMRC

For businesses deciding whether to register voluntarily, understanding what’s included in a VAT return is important because VAT registration affects pricing, invoicing, record keeping and cash flow.

What Is Included in a VAT Return?

HMRC requires a VAT return to include:

• your total sales
• your total purchases
• the amount of VAT you owe
• the amount of VAT you can reclaim
• the amount HMRC owes you where input VAT exceeds VAT due

The return is essentially a summary of the VAT activity for the relevant accounting period.

The figures are then used to work out whether the business needs to pay VAT to HMRC or is due a repayment.

Businesses that want a broader overview of the system can also review our comprehensive guide to UK VAT for business owners.

What Is Output VAT?

Output VAT is the VAT a VAT-registered business charges customers on taxable sales.

For example, if a business sells a standard-rated service for £1,000 plus 20% VAT:

The £200 is output VAT collected from the customer on behalf of HMRC.

This amount contributes towards the VAT due on the business’s VAT return.

What Is Input VAT?

Input VAT is the VAT your business pays on eligible business purchases and expenses.

Examples may include VAT on:

• stock
• equipment
• professional services
• software
• office costs
• certain travel expenses
• other qualifying business purchases

A VAT-registered business can usually deduct eligible input VAT from its output VAT liability.

However, not all VAT paid can necessarily be reclaimed. Restrictions can apply depending on the type of expense and how it is used.

How Do Output VAT and Input VAT Work Together?

The basic VAT calculation is:

Output VAT minus reclaimable input VAT = VAT payable or refundable

For example:

If the figures were reversed and reclaimable input VAT exceeded output VAT, the business could be entitled to a VAT repayment from HMRC.

This is one reason VAT can have an important impact on business cash flow.

What Does Inclusive of VAT Mean?

Inclusive of VAT means that the VAT has already been included in the price shown.

For example, if an item costs £120 including VAT at the standard 20% rate:

• net price is £100
• VAT is £20
• total VAT-inclusive price is £120

A customer paying £120 does not then have another £24 added on top.

VAT is already contained within that £120 price.

For standard-rated VAT, a business can work backwards from a VAT-inclusive price by dividing the total by 1.20.

What Is the Difference Between VAT Inclusive and VAT Exclusive?

A VAT-exclusive price does not yet include VAT.

For example:

This distinction is particularly important for businesses selling to consumers.

Prices displayed to consumers will normally already include VAT, while business-to-business prices may sometimes be shown excluding VAT with the VAT added separately.

Do You Include the Full Value of Sales on a VAT Return?

Yes. Businesses generally include the full value of relevant sales in the appropriate VAT return boxes.

HMRC also requires businesses to account for VAT on the full value of taxable sales even where:

• goods or services are received instead of money
• an item is accepted in part-exchange
• the business failed to separately charge VAT to the customer

Where a VAT-registered business should have charged VAT but did not separately add it to the customer price, the price charged can be treated as VAT inclusive.

This means part of the amount already received may still need to be paid to HMRC as VAT.

Example: VAT Was Not Added to the Customer Price

Suppose a VAT-registered business charges a customer £1,200 for a standard-rated service but forgets to state or add VAT separately.

The £1,200 may be treated as VAT inclusive.

At a 20% VAT rate:

The business may therefore still owe £200 to HMRC even though it did not separately collect VAT from the customer.

This is why VAT registration should be reflected correctly in pricing and invoicing systems.

What Are the Main Boxes on a UK VAT Return?

A standard UK VAT return contains nine boxes.

Box 1: VAT Due on Sales and Other Outputs

This generally includes output VAT charged on taxable sales and certain other amounts due.

Box 2: VAT Due on Acquisitions From EU Member States

This box has a more limited role under post-Brexit VAT arrangements and is particularly relevant to certain Northern Ireland transactions.

Box 3: Total VAT Due

This combines the VAT amounts from Boxes 1 and 2.

Box 4: VAT Reclaimed

This is the VAT being reclaimed on eligible purchases and other inputs.

Box 5: Net VAT to Pay or Reclaim

This is the difference between VAT due and VAT reclaimable.

It determines whether you need to pay HMRC or HMRC owes your business a repayment.

Box 6: Total Value of Sales

This generally includes the value of relevant sales excluding VAT.

Box 7: Total Value of Purchases

This generally includes the value of relevant purchases excluding VAT.

Boxes 8 and 9

These relate mainly to specified supplies and acquisitions involving Northern Ireland and EU member states.

The exact treatment of individual transactions can depend on the business’s VAT arrangements.

What Purchases Can Be Included in a VAT Return?

VAT-registered businesses normally record business purchases in their VAT records and include relevant values on the VAT return. However, including a purchase in the return does not automatically mean all of the VAT can be reclaimed.

Input VAT recovery depends on factors such as:

• whether the business holds appropriate VAT evidence
• whether the expense is genuinely for business purposes
• whether the purchase relates to taxable business activities
• whether specific VAT blocking rules apply
• whether the business makes exempt supplies

Businesses making both taxable and exempt supplies may also need to consider partial exemption rules. Before reclaiming input VAT, businesses should also check a supplier’s UK VAT number where appropriate to confirm that the registration details are valid.

What VAT Cannot Normally Be Reclaimed?

Some VAT may be restricted or blocked.

Common areas requiring care include:

• business entertainment
• cars available for private use
• personal or private expenditure
• costs relating to exempt business activities
• purchases without sufficient VAT evidence

The exact treatment depends on the circumstances.

Businesses should not assume that every VAT amount shown on a supplier invoice can automatically be reclaimed.

Do Zero-Rated Sales Go on a VAT Return?

Yes. Zero-rated sales are still taxable supplies for VAT purposes even though VAT is charged at 0%. They generally still need to be included in the relevant sales figures on the VAT return. Examples of zero-rated goods can include certain food products and children’s clothing. Zero-rated supplies are different from VAT-exempt supplies. This distinction can affect both VAT registration and input VAT recovery.

Businesses selling goods internationally should also understand how VAT applies to goods you export, as qualifying exports can have specific zero-rating and evidence requirements.

Do Exempt Sales Go on a VAT Return?

Certain exempt supplies may still need to be reflected within the business’s VAT accounting records and can affect how much input VAT can be reclaimed.

Typical VAT-exempt areas can include some:

• financial services
• insurance
• education
• healthcare
• property transactions

The important distinction is that exempt supplies are not the same as zero-rated supplies. Zero-rated supplies remain taxable supplies at 0%, whereas exempt supplies fall outside the taxable VAT charge.

Businesses making exempt sales should understand the rules for VAT-exempt supplies, particularly because exemption can affect input VAT recovery and partial exemption calculations.

Do You Include Purchases Without VAT?

The value of relevant purchases can still form part of the VAT return even where no VAT was charged.

However, if no VAT was charged, there is normally no input VAT to reclaim.

For example, a supplier that is not VAT registered may issue an invoice without VAT.

The purchasing business cannot simply calculate 20% of that invoice and claim it back.

What Is the VAT Registration Threshold?

The current UK VAT registration threshold is £90,000 of taxable turnover.

A business generally needs to register if:

• its taxable turnover for the previous 12 months goes above £90,000
• it expects taxable turnover to exceed £90,000 within the next 30 days

Businesses below the threshold can also choose voluntary VAT registration. Taxable turnover includes standard-rated, reduced-rated and zero-rated taxable supplies.

Businesses approaching the VAT registration threshold should monitor taxable turnover carefully so they can register at the correct time.

Should a Business Register for VAT Voluntarily?

Some businesses choose to register even where turnover remains below £90,000.

Potential advantages can include:

• reclaiming VAT on eligible business purchases
• appearing more established to certain customers
• preparing early for expected growth beyond the threshold

Potential disadvantages can include:

• additional administration
• Making Tax Digital requirements
• the need to submit VAT returns
• possible price increases for customers who cannot reclaim VAT
• cash-flow management requirements

Whether voluntary registration is beneficial depends on the business model, customer base and level of VAT-bearing expenditure. Businesses considering voluntary registration should also check their eligibility for the VAT Flat Rate Scheme, as the scheme can affect how VAT is calculated and reported.

Can You Charge VAT Before Registering?

No. A business cannot normally charge customers VAT simply because it expects to register later. VAT should only be charged once the business is properly VAT registered and the effective registration date applies.

Similarly, input VAT recovery is generally available only within the VAT rules applying to registered businesses. Businesses approaching the £90,000 threshold should monitor turnover carefully so they do not register late.

Businesses using an accountant or tax agent may also want to understand the new VAT registration process for agents before the effective registration date is established.

How Often Do You Submit a VAT Return?

Most businesses submit VAT returns every three months. The period covered is called the VAT accounting period. Businesses using specific VAT schemes may have different arrangements. The return and any VAT payment are usually due one calendar month and seven days after the end of the accounting period.

Businesses using special VAT schemes may follow different calculation or reporting rules, so it can be useful to review a VAT Flat Rate Scheme overview where that scheme is relevant.

Does Making Tax Digital Apply to VAT Returns?

Yes. VAT-registered businesses are generally required to follow Making Tax Digital for VAT rules. This means businesses need to maintain certain VAT records digitally and submit VAT returns using compatible software.

Businesses should therefore make sure their bookkeeping and accounting systems can produce accurate VAT information throughout the period rather than trying to reconstruct everything immediately before the deadline.

Businesses should therefore make sure their VAT digital record keeping meets Making Tax Digital requirements throughout the accounting period.

What Records Should Support a VAT Return?

Businesses should retain appropriate VAT records supporting the figures submitted.

These can include:

• sales invoices
• purchase invoices
• credit notes
• VAT account records
• import VAT documentation
• export evidence
• bank and payment records
• records of adjustments
• Making Tax Digital records

Good VAT records make it easier to prepare the return and respond if HMRC later queries a figure. Businesses should also review whether their VAT control system is strong enough to detect coding, invoice and reconciliation errors before figures reach the return.

What Happens If You Make a Mistake on a VAT Return?

VAT return errors should not simply be ignored. The method used to correct an error can depend on its value and circumstances. Some errors may be corrected on a later VAT return, while others may need to be disclosed separately to HMRC.

Penalties and interest can potentially apply where VAT has been understated or too much input VAT has been claimed. Businesses should therefore review errors promptly when they are identified. Many errors can be prevented through stronger VAT compliance and avoiding common pitfalls before the return is submitted.

CASE STUDY: Helping a Business Correct Its VAT Return Before Submission

A growing business based near our Farringdon office contacted CIGMA Accounting while preparing its quarterly VAT Return. The finance team understood the basic principle of output VAT and input VAT but was unsure whether several purchases, zero-rated sales and VAT-inclusive customer receipts had been treated correctly.

CIGMA Accounting reviewed the underlying sales records, purchase invoices, VAT codes and supporting documentation before the return was submitted.

The review identified that one standard-rated customer invoice had been entered as a VAT-inclusive amount without the VAT element being separated correctly. We also found several supplier costs where VAT had been entered into the bookkeeping system even though the supplier was not VAT registered.

We helped the business reconcile the figures included in the main VAT Return boxes, including output VAT, reclaimable input VAT, total sales and total purchases. We also explained why including a purchase in the VAT Return does not automatically mean that all VAT associated with it can be reclaimed.

As part of the review, the company strengthened its VAT records and introduced clearer checks over invoices, VAT coding and supporting evidence before each quarterly submission.

This gave management greater confidence that the figures reported through Making Tax Digital could be traced back to the underlying accounting records and reduced the risk of incorrect VAT claims.

The client left with a clearer understanding of their position, options, and next steps.