Last updated: 14 October 2026
What should you do if you’re struggling with VAT compliance?
Start by finding out exactly what’s behind the problem: late returns, errors, cash flow or software. Then fix the most urgent issue first. File any overdue returns, even if you can’t pay. Agree a payment plan if needed, correct past errors, and set up a simple monthly routine in Making Tax Digital software. Many small businesses get on top of VAT within one or two quarters once records are kept up to date and someone owns the deadlines.
Common VAT compliance problems
| Problem | What it leads to | Fix |
| Late returns | Penalty points, then £200 penalties | File on time, set reminders |
| Late payments | Penalties from day 15 plus interest | Direct debit or payment plan |
| Wrong VAT rate | Underpaid VAT, assessments | Check rates for each product |
| Missing invoices | Disallowed input tax | Receipt capture apps |
| Spreadsheets without digital links | Non-compliance with MTD | Bridging or full software |
| Not tracking the threshold | Late registration | Monthly turnover check |
A 30-day recovery plan
- Week 1: list all outstanding returns and payments in your business tax account
2. Week 2: bring bookkeeping up to date and reconcile your bank accounts
3. Week 3: file overdue returns and agree Time to Pay if needed
4. Week 4: correct any errors, set up direct debit and agree a monthly bookkeeping routine
Correcting errors
Net errors up to £10,000, or up to 1% of box 6 turnover (maximum £50,000), can usually be corrected on your next return. Larger errors, or deliberate ones, must be reported to HMRC separately. Telling HMRC before it finds an error reduces penalties significantly.
Choosing a better VAT scheme
Sometimes the scheme itself causes problems. Cash accounting can reduce payments for businesses with slow-paying customers. Annual accounting means only one return a year. The flat rate scheme can simplify calculations for low-cost businesses.
Example
A shop owner has filed two quarterly returns late, so he has 2 penalty points. Quarterly filers get a £200 penalty at 4 points, so he is close. He files both returns, sets up a £7,000 payment plan and moves bookkeeping to Xero with receipt capture. Because he stays below the threshold, each point expires 24 months after the month it was given, as long as he files on time.
Who should own VAT in your business
Give one person responsibility for VAT deadlines, even in a small business, and agree with your accountant who submits each return. A shared calendar with the filing and payment dates helps, and so does a short checklist for each quarter-end: reconcile the bank, check invoices and review the VAT rates used.
Getting help
An accountant can act as your agent, file returns, handle HMRC correspondence and train your staff. If HMRC opens a compliance check, get advice before replying.
Frequently asked questions
Will HMRC prosecute me for late VAT returns?
Very unlikely for ordinary lateness; penalties apply instead.
Can HMRC estimate my VAT?
Yes, it can issue a central assessment if returns are missing.
How long do I keep VAT records?
Usually 6 years.
Does MTD apply to all VAT-registered businesses?
Yes, unless HMRC has granted an exemption.
Related: VAT late filing penalties and keeping VAT records.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with VAT compliance support. See our VAT accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
