VAT responsibilities begin when your business becomes VAT registered. You are no longer just selling goods or services. You are also collecting VAT for HMRC, charging the right rate, keeping proper records, checking supplier invoices, dealing with reverse charge VAT where needed, and submitting VAT returns on time. Understanding these VAT responsibilities helps you avoid penalties, protect cash flow and stay out of VAT hot water.

About this episode

What are your VAT responsibilities? explains what changes once your business becomes VAT registered.

We look at the different types of VAT supplies, how input VAT and output VAT work, what conditions matter when claiming VAT back, how reverse charge VAT works, and what goes into a VAT return.

If you need the beginner foundation first, our episode on What Is VAT? A Simple Introduction for Business Owners is a useful starting point.

Why VAT responsibilities matter

When your business becomes VAT registered, you take on the role of collecting VAT from customers and accounting for it to HMRC.

That means VAT is not just an admin label on your invoices. It affects pricing, records, cash flow, accounting systems, VAT returns, supplier checks and deadlines.

If you get VAT wrong, fines, interest and penalties can follow. That is why we need to understand the basics before VAT becomes stressful.

Key points from this episode

What are your VAT responsibilities?

Your VAT responsibilities include charging VAT where appropriate, using the correct VAT rate, keeping suitable records, checking VAT invoices, submitting VAT returns and paying any VAT owed by the deadline.

You also need to understand when VAT can be reclaimed on business purchases and when it cannot.

The episode describes VAT-registered businesses as unpaid tax collectors. That may sound dramatic, but it captures the point. We collect VAT from customers, account for VAT on purchases, and pay or reclaim the difference through the VAT return.

VAT supplies: exempt, outside the scope and taxable

The episode explains three broad types of supply in UK VAT: exempt supplies, supplies outside the scope of UK VAT, and taxable supplies.

Taxable supplies can then be standard-rated, reduced-rated or zero-rated. These categories matter because they affect what VAT you charge, what goes into the VAT return and whether input VAT can be reclaimed.

Do not treat the category as a technical detail only. The classification affects real money, records and compliance.

Output VAT and input VAT

Output VAT is the VAT you charge customers on your sales where VAT applies.

Input VAT is the VAT you pay to suppliers on goods and services bought for the business.

At the end of the VAT period, we compare the VAT collected from customers with the VAT paid to suppliers. If output VAT is higher than input VAT, the difference is normally paid to HMRC. If input VAT is higher, the business may be due a refund, subject to the rules.

Claiming VAT back from suppliers

You can usually reclaim VAT on business purchases where the purchase relates to taxable business activity and the right evidence is kept.

The episode uses a newsagent example. If the business sells standard-rated goods, VAT on related purchases may normally be recoverable. If it makes exempt supplies, VAT connected to those exempt supplies may not be recoverable.

Zero-rated supplies are different from exempt supplies. A zero-rated sale has VAT at 0%, but related input VAT may still be recoverable where the conditions are met.

VAT invoices and records

VAT invoices matter because they support the figures in your VAT return.

A valid VAT invoice normally needs key information such as the supplier’s VAT number, dates, description of goods or services, VAT rate, VAT amount, supplier details, customer details and any relevant discounts.

Supplier invoices should also show the VAT number, rate, VAT amount and description of what was bought. Weak records can create problems if HMRC checks your VAT return later.

Small purchases still need evidence

The episode also mentions lower-value purchases. Even where a simplified receipt is acceptable, you still need enough evidence to support the VAT claim.

That means we should not assume every receipt allows VAT recovery. We need to know that the supplier is VAT registered and that the purchase relates to the business.

If the evidence is missing, HMRC may challenge the claim and ask for VAT to be repaid with interest or penalties.

Reverse charge VAT

Reverse charge VAT applies where the customer accounts for VAT instead of the supplier in certain situations.

The episode describes it as acting as both supplier and customer. We calculate VAT as if the service had been supplied in the UK, record the output VAT, and reclaim it as input VAT where the normal rules allow.

No cash changes hands for the reverse charge itself. It is an accounting entry. Common examples can include services bought from overseas suppliers, such as some digital advertising or professional services. Our episode on What Is VAT Reverse Charging? How It Works for Businesses explains this in more detail.

VAT returns and the nine boxes

Most VAT-registered businesses submit VAT returns for each VAT period, often quarterly.

The VAT return summarises the VAT charged to customers, VAT paid to suppliers, reverse charge entries, taxable sales, purchases and any special overseas or Northern Ireland-related entries where relevant.

There are nine boxes on a VAT return. Software can help capture the information, but the business remains responsible for making sure the figures are correct.

VAT return deadlines and payments

VAT returns normally need to be submitted by the deadline for the VAT accounting period. Any VAT owed must also reach HMRC by the payment deadline.

The episode uses the common deadline rule of one month and seven days after the end of the VAT quarter. For example, if a VAT quarter ends on 31 August, the usual online return deadline would be 7 October.

Deadlines should always be checked in your VAT online account or accounting software because schemes, periods and special cases may differ.

VAT and digital records

VAT is now closely connected with digital accounting and Making Tax Digital.

For most VAT-registered businesses, VAT returns are submitted digitally using compatible software. Digital records and good bookkeeping systems reduce the risk of missing invoices, wrong boxes or late returns.

Our episode on Making Tax Digital Quarterly Updates: What to Send and When is useful if you want the wider digital reporting context.

VAT responsibilities checklist

• Do you know which of your supplies are taxable, exempt or outside the scope?
• Are you charging VAT at the correct rate?
• Do your invoices show the right VAT information?
• Are you putting output VAT aside so it is available when due?
• Do supplier invoices show a valid VAT number and VAT breakdown?
• Can you support every VAT reclaim with proper evidence?
• Do you understand when reverse charge VAT applies?
• Are your VAT return boxes reviewed before submission?
• Do you know your VAT return and payment deadlines?
• Are your digital records and software set up properly?

FAQs about VAT responsibilities

What are my VAT responsibilities once registered?

Your VAT responsibilities include charging the correct VAT, keeping records, issuing valid VAT invoices, checking supplier invoices, submitting VAT returns and paying any VAT owed to HMRC on time.

What is output VAT?

Output VAT is the VAT your business charges customers on taxable sales. It is collected from customers and reported on your VAT return.

What is input VAT?

Input VAT is the VAT your business pays to suppliers on purchases. You may be able to reclaim it where the purchase relates to taxable business activity and the right evidence is kept.

When do VAT returns need to be submitted?

VAT returns are usually submitted every three months, and the deadline is normally one calendar month and seven days after the end of the VAT accounting period. Always check your own VAT online account.

Episode Timecodes

• 00:00 – VAT registration and unpaid tax collector responsibilities
• 00:24 – What the episode covers
• 01:16 – Types of VAT supplies in the UK
• 01:44 – Taxable supplies: standard, reduced and zero-rated
• 02:06 – Output VAT and input VAT explained
• 02:53 – Exempt supplies and outside the scope of VAT
• 03:15 – Zero-rated, reduced-rated and standard-rated supplies
• 04:03 – Why VAT categories affect returns and reclaiming VAT
• 04:27 – Newsagent example and reclaiming VAT
• 06:05 – Documentation and VAT invoice requirements
• 07:17 – Supplier invoices and evidence for VAT claims
• 07:40 – What reverse charge VAT means
• 08:47 – Reverse charge example with overseas services
• 09:32 – VAT returns, dates and obligations
• 10:20 – VAT return boxes explained
• 12:05 – VAT return deadlines and payments
• 12:54 – Digital VAT returns and final thoughts

Related episodes

• VAT in the UK: How It Works and How to Stay Compliant
• What Is VAT? A Simple Introduction for Business Owners
• What Is VAT Reverse Charging? How It Works for Businesses

Key takeaway

VAT responsibilities are part of being VAT registered. We need to charge the right VAT, keep the right records, understand input and output VAT, deal with reverse charge where needed, and submit VAT returns on time.

VAT does not need to feel overwhelming, but it does need proper systems and regular attention. The better your records and software, the easier it is to stay compliant and avoid VAT hot water.

Plan it, Do it, Profit.

“Once your business is VAT registered, you are collecting VAT for HMRC. Good records and correct returns keep you off the naughty step.”

Further Support

The I Hate Numbers podcast helps business owners understand VAT, tax, accounting, bookkeeping, cash flow and business planning in a practical way. We simplify financial topics so you can make better decisions and feel more confident with your numbers.

If you want support with VAT, bookkeeping, tax affairs, accounting systems or planning, you can contact us for an initial chat.

You can also watch more practical finance and tax support on the I Hate Numbers YouTube channel, or listen and follow on Apple Podcasts.

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When your business becomes VAT registered, you take on obligations and responsibilities as an unpaid tax collector working for the tax office. If you do not comply with these responsibilities, then it's very likely that you'll be relegated to the tax office's naughty step, with possible fines and penalties for your pleasure, and we don't want that. In this week's

I Hate Numbers Podcast, I'm going to talk to you about the different types of VAT supplies, and for supplies think turnover, the conditions that you need to stick to, to claim back any VAT that you pay out to your suppliers, reverse charging, and I'm not talking about collect calls, and finally, the VAT return, how to complete it and when it should be submitted.

You are listening to the I Hate Numbers Podcast with Mahmood Reza. The I Hate Numbers podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now, here's your host, Mahmood Reza.

Hi folks. Welcome to another weekly episode of I Hate Numbers, the podcast with a mission to improve your financial understanding, improve your money mindset, make more money, save tax and time, and give you the business lifestyle that you desire. Let's crack on with the podcast. There are three types of supply in the United Kingdom, namely exempt supplies, outside of the scope of VAT, that's UK VAT by the way, and taxable supplies.

And within taxable, we break that down even further into zero-rated, reduced-rated, and standard-rated supplies. If you're thinking, why have all these classifications, this is not just to keep finance people happy, but it has a relevance for when you come to charging VAT, what goes into your VAT return,

and lastly, for claiming back any VAT that you've paid over to your suppliers. It's worthwhile remembering that in the role of VAT, your job as a tax collector is to charge your customers VAT where appropriate at the correct rate, to click that VAT from them, that's called output VAT, and you put that to one side.

You then have VAT that you are paying on supplies for your business, goods and services that you buy in. The VAT on that is called input VAT, and what we do at the end of each relevant period, we compare the VAT we've paid over, the VAT we've collected, work out the difference, and we either pay it over to HMRC, or we claim it back. More of that later on in the podcast.

Within the category of exempt supplies are typically insurance, postal services, and financial services. So, if your business is a post office, then the supply of postage stamps will be exempt. You will also have supplies which are outside the scope of UK VAT. Typically, exports outside of the United Kingdom will be classified as outside

the scope would also include things like the payment of wages, dividends, and taxes. Tax-full supply, which is one that is further broken down, constitutes zero-rated for which the rate of VAT is zero. That will apply to children's clothing, newspapers, foods, and medicine. There is reduced VAT, so the supplies of low-consumption electricity will attract a rate of 5%.

Currently, at the date of producing this podcast, the retailing of food by bars, cafés, restaurants, takeaways, will attract a reduced rate of VAT. And lastly, we have what's called standard-rated, and the easiest way to look at these is any item that you supply, which does not fit into any of the categories of exempt, outside

the scope, zero, or reduced-rate, is a standard-rated supply. What's the implications of those different supplies? I mentioned earlier on in the podcast, it affects three areas. The figures that go into the VAT return, what you can claim back in respect of VAT that you pay out to your suppliers, and also the rates that you're going to be charging on those particular services.

Later on the podcast, I'm going to be using the example of a newsagent’s, and to illustrate that when we come to completing our VAT return, and looking at what we can claim back. The general rule of thumb when it comes to claiming back VAT is that any supplies that you make, which are standard rated, any purchases that you make, which are connected to that sale, we can claim the VAT back.

So, typically in our fictional newsagent’s that has an alcohol license and sells alcohol, then any products, all the beers, and wines, and spirits that it buys in, they'll be VAT typically charged by the supplier. Its sales on that beer, wines, and spirits to its end customer, they'll be VAT charged on that, and we can, if all the other conditions are compliant with, claim back all the VAT. Any supplies that we incur in respect of outside of the scope,

we can claim the VAT on that. So, typically on exports, we can claim back the VAT on that, assuming those items would be taxable if they were made in the UK. If we incur any VAT in relation to exempt supplies, however, prima facie, that VAT is not recoverable. So, if your business in our newsagent’s

example, if that newsagent’s also had a post office license and it was selling postage stamps, those postage stamps are called exempt. No VAT is charged on them. But, if we had perhaps a bookkeeper who was employed to look after the books of the post office, any VAT charged by that bookkeeper, by that accountant would not be claimable.

If our newsagent’s sold children's clothing, so that's a very industrious, entrepreneurial type of newsagent’s. Children's clothing is zero-rated. Any costs in relation to selling those children's clothing that had VAT would be claimable. The other conditions that we need to be aware of when it comes back to claiming VAT is the documentation and the records that we maintain.

We think two of the main records that are lightly to float about, and those will be invoices that we issue to our customers. A customer invoice must have relevant details on there for it to be a valid VAT invoice. Those would include: the VAT number, an absolute must, the dates of the delivery of those goods or services, the description of what those goods and services are,

you can't just say it's goods, you had to be more specific in your wording, the address of the customer, your address, what the rate of VAT is that's being applied, the amount of VAT that's being charged, any discounts that you might be offering to your customers as well. The supplier invoices are effectively a mirror image, so we must see the supplier's VAT number.

We must see on that document the breakdown between VAT, the rate that's being charged, the address of the supplier, and the description of the goods and services. If you purchase items of what's called a relatively modest low value, up to 25 pounds, the only thing that you need to have really is confirmation, somehow, that your supplier is VAT registered.

If not, if you ever have a VAT inspection, you'll be expected to pay back that VAT with interest and penalties on top. So, we talked about the different types of supplies. We talked about the conditions for claiming back VAT. I now want to talk about what reverse-charged VAT is. Now, reverse-charged

VAT is where you act as both the supplier and the customer. You charge yourself the VAT, and then you claim it back as input that is subject to the normal rules. Now, governments like it because it reduces the level of VAT fraud and evasion, and when your business applies reverse charging the responsibility

shifts to your customer. It's like a reverse-charge collect call where the bill payer picks up the tab. Now, it's important to remember, there's no money that actually changes hands. It's just an accounting measure. So, where you purchase goods from overseas, perhaps you have got a marketplace in Holland, you employ the services of a Dutch supplier who's going to do some SEO translation work for you.

They raise an invoice to you, assuming the value of their services are a thousand pounds. If that service was provided in the United Kingdom, at standard rate, you would pay 20% VAT or 200 pounds. If the invoice, though, is a reverse-charge one, and it must state so on the invoice from the supplier, then you act effectively as the supplier and the customer.

You recall that invoice in your VAT return, add 200 pounds to the relevant box, and take off 200 pounds to the relevant box as well. Remember, there's no money that changes hands. It's the accounting that's important. Bear in mind, things like Google Ads, Facebook ads are common examples of services that we buy that are subject to reverse charging.

Folks, what I'd like to conclude with now is to look at the VAT return, the dates and the obligations in respect to that. Normally, for most VAT-registered businesses, every three months at the end of a VAT quarter, a VAT return will have to be prepared. This essentially summarises the transactions that have occurred during the last three months, and there are nine boxes in a VAT return. For most businesses that are VAT registered,

software or accounting systems will capture the information that goes into the VAT return, but it's your responsibility to make sure the figures in the boxes are correct. If you don't have an accounting system that does that, if you haven't gone digital, then that's a real big oversight. Check out the show notes at the end for a couple of links to some articles and resources on accounting systems.

In your VAT return, there are nine boxes to complete and they are as follows. Box number one is where you record your output VAT, and that's the VAT that you've charged on the services, the supplies you've made to your customers. It also includes the output VAT from reverse charging. Box number two will apply where VAT is due on acquisitions on Northern Island goods, and it refers to overseas activities, and overseas refers to anything outside of the United Kingdom.

For a simple VAT return where you are all UK-based, box two can be ignored. Box number three is just box one and two figures added together. Box four refers to your input VAT, and that's the VAT you are claiming back on the supplies that you've purchased, and the VAT from any reverse charging invoices.

Box five is a difference between boxes three and four. If, for example, you have charged 5,000 pounds worth of VAT to services you supply to your customers and you've incurred VAT on supplies that you've purchased to the value of three, then you have to pay over to HMRC 2000 pounds. It can work the other way round.

You may have a quarter whereby the output of VAT is less than the input of VAT. In that case, a refund will work its way into your bank account. Box number six is the total of your taxable and exempt supplies. It will include also the reverse charge value. Do not include VAT in box six, by the way. It's the value of those supplies excluding VAT. Box seven is the total value of all your purchases.

Again, leave out the VAT from those items. Box number eight are supplies to the EU member states, and box number nine is acquisitions from EU member states. Again, if it's a simple VAT return in the sense that all your customers and suppliers are in the UK, box eight and nine is of no relevance. Finally, you must submit that VAT return within one month and seven days after the end of your VAT quarter.

So if your quarter date runs between the 1st of June and the 31st of August, your VAT return will summarise and have figures going to those potentially nine boxes, you must submit that VAT return by the 7th of October, 2021. And you must also make sure any monies that are owed are paid by that date as well.

Nowadays, unless you have some exceptions, all VAT returns are filed digitally and online. There are some exceptions. So, if you are a Quaker, for example, then you don't need to file a VAT return electronically. Hi folks. I hope you've got some value from this podcast. I'd love it if you could subscribe to the podcast.

If you've got any thoughts and feedback on the podcast, I'd love to hear from you. If you've got any thoughts for what you'd like covered a future episode, I'd love to hear from that as well. Until then, have a fantastic week ahead. We hope you enjoyed this episode and appreciate you taking the time to listen

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