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VAT return review checklist: the checks that prevent costly errors before you file

The number your accounting software generates is only as reliable as the coding decisions behind every transaction in that period.

March 2026 | Estimated read time: 6 min

HMRC's own data shows a VAT gap of approximately 6.2% for 2024/25, equivalent to £11.4 billion. Most of that gap comes from error and failure to take reasonable care, not deliberate evasion. With Making Tax Digital now giving HMRC greater visibility into VAT data, inconsistencies are more easily flagged than they were under the old paper based system.

When does a VAT error require separate disclosure?

Below £10,000

Correct on next return

Can usually be corrected on the next VAT return without separate disclosure, subject to the detailed HMRC rules.

£10,000 to £50,000

Check Box 6

Separate disclosure is required where the error is over 1% of the Box 6 figure for the current period.

Over £50,000

Disclose separately

Mandatory separate disclosure is required regardless of the Box 6 percentage.

Any deliberate error must always be separately disclosed. Penalties for careless errors can range from 0% to 30% of the underpaid VAT, and deliberate errors can attract penalties up to 100%.

Start with the VAT transaction report, not the box totals

The box totals in your accounting software are a summary. The errors are in the detail. Running a full VAT transaction report for the period and reviewing it line by line is where the problems are found.

Zero rated income coded as exemptBoth produce zero output tax, so the totals can look identical. The difference matters for partial exemption calculations and input tax recovery.
Input tax on blocked costsBusiness entertainment for non employees, motor cars available for private use and certain gifts above £50 per person per year are blocked from input tax recovery.
Reverse charge not appliedOverseas services often require the recipient to self account for UK VAT. This creates both an output tax entry and an input tax entry.
Import VAT without C79 certificateInput tax on import VAT can only be reclaimed where the business holds a C79 certificate issued by HMRC.
Construction reverse charge errorsFor construction businesses, the domestic reverse charge on qualifying services between subcontractors and contractors remains an active compliance risk.

Transactions that need more than an invoice

Property and land

VAT treatment depends on whether the option to tax has been exercised and on the specific nature of the property transaction.

Overseas services

The nature of the service, location of the supplier and business status of the customer all affect the treatment.

High value assets

Capital expenditure above certain thresholds may fall under the Capital Goods Scheme and require annual adjustments.

Staff expenses

Input VAT on employee expenses requires a valid VAT receipt, not just a credit card statement.

Partial exemption: the area most likely to be wrong without anyone noticing

Partial exemption applies where a business makes both taxable and exempt supplies. Common triggers include property rental income from non opted properties, financial services commission, grant income and certain insurance or educational activities alongside ordinary trading.

Common problems include failing to identify exempt supplies, using the wrong income figures, missing the annual adjustment and not retaining working papers showing how the recovery percentage was calculated.

The calculation must be performed for each quarter and an annual adjustment must be completed using the full year figures. Where a business has a special method agreed with HMRC, it must be followed consistently.

Penalty points: how the current system works

Monthly filers

5 points

The threshold for a £200 penalty.

Quarterly filers

4 points

The threshold for a £200 penalty.

Annual filers

2 points

The threshold for a £200 penalty.

Points do not reset automatically. The business must submit a series of returns on time and have no outstanding returns from the relevant look back period before points are cleared. Late payment penalties are separate from late submission penalty points.

Pre submission review checklist

  • VAT transaction report reviewed for unexpected codes or unusual patterns.
  • Input tax on blocked costs checked and removed.
  • Reverse charge entries verified for overseas services purchased.
  • Construction reverse charge applied correctly to qualifying transactions.
  • Import VAT claimed only where C79 certificates are held.
  • Partial exemption calculation completed and annual adjustment flagged where applicable.
  • Flat rate scheme percentage confirmed as current and correct.
  • Supporting documents available for high value or unusual items.
  • Return reconciled to bookkeeping records before submission.
  • Sign off recorded before filing.

VAT support

Review the return before it is filed

Our VAT Advice team reviews VAT coding, return preparation and unusual transactions before submission. For partial exemption, reverse charge or complex property arrangements, we can confirm the correct treatment before the return is filed. Our Bookkeeping and Management Accounts team can also strengthen the records behind each return.

Related support

VAT Advice

We can review VAT coding, return preparation and unusual transactions before a return is submitted.

View service Book a consultation

FAQ

Frequently asked questions

What are the most common VAT return errors UK businesses make?Common errors include miscoding zero rated income as exempt, reclaiming input VAT on blocked costs, failing to apply the reverse charge on overseas services, missing the C79 requirement for import VAT and making mistakes in partial exemption calculations.
When does a VAT error need to be separately disclosed to HMRC?Separate disclosure is required where the net value of previous return errors is over £50,000, or where it is between £10,000 and £50,000 and exceeds 1% of Box 6 for the current period. Deliberate errors must always be separately disclosed.
What is the domestic reverse charge for construction services?The domestic reverse charge requires the recipient of qualifying construction services to account for VAT, rather than the supplier charging it. It applies in the supply chain between VAT registered contractors and subcontractors.
What is partial exemption and who does it affect?Partial exemption applies where a business makes both taxable and exempt supplies. It can affect businesses with property rental income, financial services commission, grant income or certain insurance or educational activities alongside ordinary trading.
What are the VAT penalty point thresholds in 2026?Quarterly filers reach the threshold at four points, monthly filers at five and annual filers at two. Once the threshold is reached, a £200 fixed penalty applies and further late submissions can trigger further penalties.

Reference links