A working VAT checklist has seven parts: registration, digital records, returns, payment, penalties, records and error correction. The numbers that matter most are the £90,000 registration threshold, the one month and seven days filing deadline, and the penalty points threshold — four for a quarterly filer.
1. Registration and deregistration
Two tests, and they work differently.
The backward-looking test: register when total taxable turnover for the last 12 months goes over £90,000. You have 30 days from the end of that month to register, and your effective date is the first day of the second month after you went over.
The forward look: register if you realise taxable turnover will exceed £90,000 in the next 30 days. You must register by the end of that 30-day period, and the effective date is the date you realised — not the date turnover would have been reached. This test is the one businesses miss, because it can bite on a single large contract.
Deregistration: the cancellation limit is £88,000, and voluntary deregistration requires satisfying HMRC that taxable turnover in the next 12 months will not exceed it. Note two traps — you cannot apply for retrospective cancellation because turnover fell, and a non-established taxable person must register for any taxable supplies and cannot use the deregistration threshold at all.
Separately, failing to tell HMRC about changes affecting your registration details within 30 days can itself attract a penalty.
2. Making Tax Digital
All VAT-registered businesses must keep records digitally and file through software. The digital records required in functional compatible software are:
- Designatory data — business name, principal place of business, VAT number, and the schemes used;
- Supplies made — time of supply, net value and VAT rate for each;
- Supplies received — time of supply, value and input tax claimable;
- Summary data — total output tax, input tax, acquisitions tax, reverse charge amounts and adjustments.
Records need not sit in one place, provided the components are digitally linked. A digital link is a transfer or exchange of data made electronically between programs without manual intervention — linked spreadsheet cells, emailing a file, XML or CSV import and export, or an API transfer all qualify. Cut and paste does not. Once data has entered the software maintaining the electronic account, any further transfer or modification must use digital links.
Spreadsheets remain acceptable, either API-enabled or digitally linked to bridging software. Exemption exists but is narrow — impracticality through age, disability or location, insolvency, religious belief incompatible with electronic communications, or existing exemption from online filing — and must be applied for, with HMRC deciding in writing.
3. Returns and payment
The deadline for both is usually one calendar month and seven days after the end of the accounting period. It applies even where the date falls on a weekend or bank holiday, and the payment must reach HMRC by then — so allow time for cleared funds. A return is due even where there is nothing to pay or reclaim.
4. Late submission: points
The points system replaced the default surcharge for periods starting on or after 1 January 2023. Each late return earns a point, and reaching the threshold triggers a £200 penalty — plus a further £200 for each subsequent late submission while at the threshold.
The thresholds are by filing frequency: annual 2, quarterly 4, monthly 5. Points stop accruing once you are at the threshold.
Points expire individually — 24 months after the month of the deadline, or 25 months where the deadline was the last day of a month. But resetting to zero requires two things: a period of compliance, and bringing filings up to date. Annual filers need 24 months and two returns on time; quarterly 12 months and four; monthly six months and six. And you must submit any outstanding returns for the previous 24 months, which includes the compliance period. A business that keeps filing on time but has an old missing return never clears its points.
5. Late payment: percentages and interest
Nothing is charged in the first 15 days. Then:
- 16 to 30 days overdue — a first penalty of 3% of the VAT owed at day 15;
- 31 days or more — 3% of what was outstanding at day 15 plus 3% of what is still outstanding at day 30;
- From day 31 — a second penalty accruing daily at 10% per year on the outstanding balance until it is paid in full.
Late payment interest runs separately from the first day the payment is overdue, at the Bank of England base rate plus 4% — a basis applying from 6 April 2025. The current rate is 7.75%, effective 9 January 2026, with repayment interest at 2.75%. Interest moves with the base rate, so check it rather than quoting from memory.
6. Records and the VAT account
Keep business records for VAT purposes for at least six years. Relief is possible where the six-year rule causes serious storage problems or undue expense, but it has to be agreed with HMRC rather than assumed.
The VAT account is the audit trail linking the business records to the return, and there is no set format provided it contains: output tax owed on sales; output tax on acquisitions where applicable; tax due under the reverse charge; output-side corrections and adjustments; input tax on purchases; input tax on acquisitions; and input-side corrections and adjustments.
Beyond that, HMRC expects the ordinary commercial records: accounts, bank statements, cash books, credit and debit notes, import and export documentation, orders and delivery notes, day books, purchase and sales invoices, records of daily takings including till rolls, and relevant correspondence.
7. Error correction
Method 1 — adjust on the next return — where the net value of errors does not exceed £10,000, or is between £10,000 and £50,000 and does not exceed 1% of the box 6 figure.
Method 2 — separate notification to HMRC — where errors exceed £50,000, or are between £10,000 and £50,000 and breach the 1% test, or were deliberate.
The time limit is four years from the end of the prescribed accounting period, with no limit for deliberate errors. And a point worth remembering from our guide to VAT error correction: a Method 1 adjustment is not a disclosure for penalty purposes, and late payment interest still runs on VAT that was not paid by the original due date.
Running it as a cycle
The failures that cost money are rarely technical. They are a forward-look registration test nobody applied, a cut-and-paste step in an otherwise digital process, an old unfiled return quietly preventing a points reset, and a payment posted rather than transferred so it arrived a day late.
Build the checks into the quarter rather than the year end: rolling turnover checked monthly, the digital chain tested once and documented, the return prepared with enough margin to clear funds, and the VAT account reconciled to the ledger and to the accounts annually. Our guide to VAT inspections covers what HMRC looks at when it visits.
Acumon handles VAT registration, returns and the digital records behind them through VAT compliance, VAT returns and VAT registration work, with a VAT health check where the position has never been reviewed. If you have penalty points and an outstanding old return, the return is what is blocking the reset.