A VAT return is only as accurate as the bookkeeping behind it. Every quarter we see returns filed from books that haven't been reconciled, with old unmatched transactions distorting figures, or with VAT codes that don't match the supply. This guide walks through the pre-submission checks every UK business should run before clicking "Submit" on a VAT return.
The 20-minute pre-submission audit
Check 1: every bank account is reconciled to the period end
This is the foundational check. If the bank isn't reconciled, the figures driving the VAT return are unreliable. Confirm every account — current, savings, credit cards, PayPal, Stripe, Wise — is reconciled to the actual statement closing balance on the last day of the VAT quarter.
Check 2: no transactions sit in suspense or unclassified accounts
Any transaction sitting in "Suspense" or "Uncategorised" has not been allocated a VAT code. It will either be excluded from the return (understating output VAT or overstating input VAT) or trigger a software error. Clear all suspense items before generating the return.
Check 3: spot-check VAT codes on the period's transactions
Run the VAT detail report and skim it. Look for:
- Anything large coded "No VAT" that should be 20%.
- Anything coded 20% that should be 0% (zero-rated food, books, kids' clothes) or exempt (insurance, financial services).
- EU and rest-of-world transactions coded with the right codes (post-Brexit treatment differs).
- Reverse charge transactions properly applied (construction, certain services from overseas suppliers).
Check 4: receipt and invoice evidence
For every input VAT claim over £25, you should have a proper VAT invoice (not just a bank statement entry). Receipt-capture tools like Dext make this trivial to check. If a claim has no evidence, decide now whether to drop it from the return — finding out at audit is worse than losing the claim today.
Check 5: customer credit notes and refunds
Customer refunds and credit notes reduce output VAT. Confirm any credit notes raised in the period are processed correctly. A common mistake is to refund via the bank but not raise the credit note in the system, leaving output VAT overstated.
Check 6: supplier credit notes and refunds
Mirror image of Check 5 — refunds from suppliers reduce input VAT reclaimable. Make sure refunds aren't sitting as positive expense entries.
Check 7: pro-forma invoices excluded
Pro-formas are not VAT invoices. Output VAT shouldn't be reported until the actual invoice is raised. If you raise pro-formas to take deposits, confirm they're not flowing into the VAT return prematurely.
Check 8: deposits and prepayments
Customer deposits received attract VAT at the point of receipt (or invoice, whichever is earlier). Confirm any deposits in the quarter have been properly accounted for. Similarly, supplier deposits paid trigger input VAT.
Check 9: cross-period transactions
Transactions dated in the prior quarter but entered into your books during the current quarter should be picked up by the software as "late claims" or "prior period adjustments." Check the VAT return picks them up correctly — most cloud platforms handle this automatically, but it's worth confirming.
Check 10: round-trip review of the return itself
Before submitting, look at the nine boxes. Do the numbers feel right compared to the prior quarter? A 200% jump in input VAT without a corresponding business reason is a red flag — could be duplicate purchase invoices. A 50% drop in output VAT without an explanation could mean missed sales invoices.
Special situations to watch
Domestic Reverse Charge (DRC) for construction
If you're in construction (CIS), DRC applies to most B2B services. Output VAT is reported by the customer, not the supplier. Configure suppliers and customers correctly in your software, otherwise the DRC entries break the return.
Partial exemption
If your business makes both taxable and exempt supplies (common in property, finance, education, healthcare), you can only reclaim a proportion of input VAT. This calculation is more involved and worth having reviewed by a VAT specialist annually. Our VAT compliance team handles partial exemption for a range of clients.
Flat Rate Scheme
On FRS, you pay a flat percentage of gross sales and generally can't reclaim input VAT (except on capital items over £2,000). The pre-submission check is simpler but make sure your software is configured for FRS, otherwise it computes the wrong return.
Capital goods scheme
Land, buildings, and high-value computer equipment may fall within the Capital Goods Scheme, requiring annual VAT adjustments over 5 or 10 years. This rarely affects SMEs but if it applies to you, your annual adjustment should be in the return.
Common errors we see
- Personal expenses claiming VAT. Director's lunches, family Netflix, personal Amazon. HMRC catches these in audit.
- Mileage claims with VAT on the wrong portion. You can only reclaim VAT on the fuel portion of an HMRC approved mileage rate, not the full rate.
- Client entertainment with VAT reclaimed. Input VAT on client entertainment is not recoverable.
- Mixed supplies coded as one VAT rate. A delivery charge on a 20% product is 20%; on a 0% product it might be 0%. Software defaults often get this wrong.
The cost of getting it wrong
HMRC penalties for VAT errors range from 0% (innocent error, voluntarily disclosed) to 100% (deliberate, concealed). The new VAT penalty regime added points-based penalties for late submissions. Interest accrues on underpaid VAT from the date it should have been paid. The cost of a careful 20-minute pre-submission check is always lower than the cost of correcting a return after submission.
When to bring in support
If your business has any of: partial exemption, DRC, multi-jurisdiction sales, OSS/IOSS for EU consumer sales, or annual turnover above £2m, the pre-submission audit benefits from a specialist eye. Our VAT compliance and advisory service handles quarterly submissions for hundreds of UK SMEs, and we run a pre-submission review on every one. Speak to us via our booking page if you'd like a one-off review of your next return.
Twenty minutes of disciplined checking before clicking submit saves weeks of unpicking after. Build the habit and your VAT compliance becomes routine, not stressful.