James
Founder, PayReady
James spent 20 years developing software and apps for Johnson and Johnson, Disney, and Eli Lilly before building PayReady for the tradesmen he saw drowning in paperwork.
Once you are VAT-registered in the UK, you need to file VAT returns and pay any VAT due to HMRC on a regular basis. For most sole traders, this means once every three months.
This guide explains exactly how the process works - including the Making Tax Digital requirement that all VAT-registered businesses must now use.
How often do I file a VAT return in the UK?
Most VAT-registered businesses file quarterly VAT returns. HMRC assigns you a VAT period when you register - your returns will be due on a stagger 1, 2, or 3 basis, meaning your quarter ends on one of three sets of dates throughout the year.
Some businesses file annual returns (if they pay by monthly direct debit instalments) or monthly returns (if they are regularly in a VAT repayment position). For most sole trader tradesmen, quarterly is standard.
1 month + 7 days - the deadline to file and pay your VAT return after each quarter ends
Source: HMRC - VAT returns
If your VAT quarter ends on 31 March, your return and payment are due by 7 May. If it ends 30 June, the deadline is 7 August. Always check your specific dates in your HMRC VAT account.
What is Making Tax Digital for VAT?
Making Tax Digital (MTD) for VAT is HMRC's requirement that all VAT-registered businesses:
- Keep digital VAT records (not paper records)
- File VAT returns using MTD-compatible software (not the old HMRC portal)
MTD has applied to all VAT-registered businesses since April 2022. You cannot file a VAT return through the old HMRC website anymore. You need software that connects directly to HMRC's systems.
MTD-compatible software includes accounting packages (Xero, QuickBooks, FreeAgent, Sage) and dedicated VAT bridging software. Some sole traders use bridging software that pulls data from their own spreadsheets and submits it digitally.
How to file a VAT return step by step
Step 1: Set up MTD
If you have not already, sign up for MTD through your HMRC online account and connect your chosen MTD-compatible software. Do this before your first return is due.
Step 2: Collect your VAT data for the period
Gather all your sales invoices (output VAT) and purchase receipts (input VAT) for the quarter. Your total output VAT is the VAT you charged customers. Your total input VAT is the VAT you paid on business expenses and materials.
Step 3: Complete the nine boxes
Every UK VAT return has nine boxes. For most sole traders, the key ones are:
| Box | What goes in it |
|---|---|
| Box 1 | VAT due on sales and other outputs (output VAT) |
| Box 2 | VAT due on acquisitions from EU countries (usually £0 for most tradesmen) |
| Box 3 | Total VAT due (Box 1 + Box 2) |
| Box 4 | VAT reclaimed on purchases and other inputs (input VAT) |
| Box 5 | Net VAT to pay to HMRC or reclaim (Box 3 minus Box 4) |
| Box 6 | Total value of sales excluding VAT |
| Box 7 | Total value of purchases excluding VAT |
| Boxes 8-9 | EU trade figures (usually £0 for UK-only tradesmen) |
Step 4: Submit through your MTD software
Your MTD-compatible software submits the return directly to HMRC. You will get a confirmation reference once it is accepted.
Step 5: Pay by the deadline
Pay any VAT due by the same deadline as the return (1 month + 7 days after the quarter end). You can pay by direct debit, bank transfer, or online banking.
What if I am owed a VAT repayment?
If your input VAT (what you paid on expenses and materials) is greater than your output VAT (what you charged customers), HMRC owes you a refund. This commonly happens if you bought a lot of materials or equipment in a quarter.
Submit your return as normal. HMRC typically processes repayments within 10 working days of receiving your return. If you are regularly in a repayment position (for example, you do a lot of new builds), you can apply to file monthly returns to get repayments more quickly.
What are the penalties for late filing?
HMRC introduced a new penalty points system from January 2023:
- Each late submission earns a penalty point
- When you reach the threshold for your filing frequency (2 points for annual, 4 for quarterly, 5 for monthly), HMRC charges a £200 penalty
- Every subsequent late return earns a further £200 penalty
- Points expire after 24 months of full compliance
There are also late payment penalties: 2% of outstanding VAT if unpaid after 15 days, rising to 4% after 30 days, and a further daily rate for amounts outstanding beyond 30 days.
Can I use the VAT Flat Rate Scheme?
The VAT Flat Rate Scheme (FRS) is available to businesses with taxable turnover under £150,000 per year. Under FRS, instead of calculating your exact output and input VAT each quarter, you pay a fixed percentage of your gross turnover to HMRC and keep the difference.
The flat rate for “general building or construction services” is 9.5%. Whether FRS is beneficial depends on your material costs and profit margins. A sole trader with low material costs often pays less VAT under FRS than standard accounting. An accountant can run the numbers for your specific situation.
For the full picture on UK VAT, see our UK VAT guide for tradesmen.
VAT calculator Free tool
Check your VAT figures before filing, for the UK and Ireland.
Sources
- VAT returns - GOV.UK / HMRC
- Use Making Tax Digital for VAT - GOV.UK / HMRC
- VAT penalties and interest - GOV.UK / HMRC
- VAT Flat Rate Scheme - GOV.UK / HMRC
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