Last updated 3 November 2026.
For every VAT return you need a digital record of each sale and purchase in the period (date, value, VAT rate and VAT amount), kept in software that works with Making Tax Digital, plus a valid VAT invoice for every purchase you reclaim VAT on. Most problems come from a short list: missing purchase invoices, VAT reclaimed on costs that do not qualify, the construction reverse charge handled wrongly, and late returns or payments.
The rules below apply for the 2026 to 2027 tax year.
Do you need to be registered for VAT?
You must register if your VAT taxable turnover for the last 12 months goes over £90,000, or if you expect it to go over £90,000 in the next 30 days alone. You can ask to cancel your registration if taxable turnover falls below £88,000. HMRC’s VAT registration guidance explains both tests, and Budget 2026 kept both figures for 2026 to 2027 and 2027 to 2028.
The 12-month test is rolling and checked at the end of every month, not against your tax year or financial year.
What records does Making Tax Digital for VAT require?
Unless HMRC has granted an exemption, every VAT-registered business must keep digital records and file through compatible software. Under VAT Notice 700/22, the digital records include:
- your business name, address, VAT number and any VAT schemes you use
- for each sale: the tax point, the value excluding VAT and the VAT rate
- for each purchase: the tax point, the value and the VAT you are claiming
- any adjustments, and the totals behind each return
If you use more than one program, data must move between them through a digital link. Copying and pasting or retyping figures does not count. Original invoices can stay on paper, but VAT records generally need to be kept for at least six years. Keeping bookkeeping up to date through the quarter makes this much easier.
What must a valid VAT invoice show?
Standard or reduced-rated sales to VAT-registered customers generally need a VAT invoice within 30 days. HMRC’s record-keeping notice (VAT Notice 700/21) says a full VAT invoice shows:
- a unique, sequential invoice number
- the time of supply, and the issue date if different
- your name, address and VAT registration number
- the customer’s name and address
- a description, quantity and unit price for each item
- the VAT rate and the amount excluding VAT for each item
- the total excluding VAT, any cash discount rate, and the total VAT in sterling
For sales of £250 or less including VAT, a simplified invoice is allowed. From 1 April 2029, VAT invoices between VAT-registered businesses are due to become mandatory e-invoices.
Why do purchase invoices matter so much?
To reclaim VAT on a purchase, you need a valid VAT invoice from the supplier. A card slip or bank statement line is not enough. You also cannot reclaim VAT on personal purchases, on entertaining business contacts, or on costs used to make VAT-exempt sales. For mixed-use items, such as a mobile phone, you can reclaim only the business share and should record your calculation.
How does the reverse charge work for building and construction services?
Since 1 March 2021, most building and construction services supplied between VAT-registered businesses have fallen under the VAT domestic reverse charge. It applies when the supplier and customer are both UK VAT registered, the payment is reported under the Construction Industry Scheme (CIS), the services are standard or reduced rated, and the customer has not confirmed in writing that it is an end user or intermediary supplier. Employment businesses supplying staff are outside it.
The supplier does not charge VAT. The invoice must say the reverse charge applies and show the VAT the customer must account for. The customer records that VAT as output tax on its own return and reclaims it as input tax under the normal rules. HMRC’s guidance on when you must use the reverse charge lists the services in and out of scope.
Example (fictional): A VAT-registered joinery subcontractor invoices a VAT-registered main contractor £8,000 for labour on a commercial project, with payment reported under CIS. The invoice charges no VAT, states that the reverse charge applies and shows £1,600 VAT (at 20%) for the customer to account for. The joiner records an £8,000 sale with no output VAT. The main contractor records £1,600 as output tax and, if fully entitled, £1,600 as input tax.
Because the reverse charge depends on CIS reporting, your VAT records and your CIS and payroll records need to agree.
If you work in construction, our CIS and construction accounting page explains how we help with CIS and the reverse charge.
When is a VAT return due, and what happens if it is late?
Returns are usually due one calendar month and seven days after the end of the VAT period, and payment must reach HMRC by the same date, even if it falls on a weekend or bank holiday.
Example (fictional): For a quarter ending 31 December 2026, the return and payment are due by 7 February 2027, a Sunday, so payment needs to be sent early.
Late returns earn penalty points, including nil and repayment returns. At the threshold (two points for annual filers, four for quarterly, five for monthly) you are charged £200, and another £200 for each further late return.
Late payment penalties are separate. Since 1 April 2025:
- paid within 15 days: no penalty
- paid between days 16 and 30: 3% of the VAT outstanding at day 15
- paid after day 30: a further 3% of the amount outstanding at day 30, plus a daily penalty at 10% a year on the balance
Late payment interest also runs from the due date at the Bank of England base rate plus 4%.
Could cash accounting or the Flat Rate Scheme help?
- Cash Accounting Scheme: you pay VAT on sales when customers pay you and reclaim VAT on purchases when you pay suppliers. You can join if expected taxable turnover is £1.35 million or less, and must leave above £1.6 million.
- Flat Rate Scheme: you pay HMRC a fixed percentage of turnover and generally cannot reclaim VAT on purchases. You can join if expected turnover is £150,000 or less excluding VAT, and must leave once it goes over £230,000 including VAT.
You cannot use both at once, and whether either suits you depends on your margins and costs.
A checklist before you submit your VAT return
- Reconcile every bank account to the last day of the VAT period.
- Check each sale has the right VAT rate and tax point.
- Hold a valid VAT invoice for every purchase you are reclaiming VAT on.
- Strip out VAT on personal, entertainment and exempt-related costs.
- Review construction sales and purchases for the reverse charge, and keep end user confirmations on file.
- Compare the return with the last period and look into large swings.
- Confirm figures reached your software through digital links only.
- Allow time for payment to clear before the deadline.
Common mistakes that cause VAT problems
- Checking the registration threshold against the tax year rather than a rolling 12 months.
- Reclaiming VAT from a supplier who is not VAT registered.
- Charging VAT where the reverse charge applies, or reverse charging a customer who has confirmed it is an end user.
- Breaking the digital link by retyping totals into bridging software.
- Forgetting that a late nil return still earns a penalty point.
- Leaving errors uncorrected. Net errors of £10,000 or less (or up to £50,000 if under 1% of total sales) can usually be corrected on your next return; larger or deliberate errors must be reported to HMRC separately.
When does professional VAT support make sense?
Support helps most when a business is near the registration threshold, works in construction or property where the reverse charge and CIS overlap, or finds each return becomes a last-minute scramble. No Hassle Accounts, based in Walton-on-Thames, provides support with VAT returns for businesses across England and Wales.
This article is general information based on HMRC guidance at the time of writing (November 2026). It is not advice for your circumstances.
If you would like help keeping your VAT records in order, get in touch.