MTD VAT for UK Small Businesses: Mistakes to Avoid + A Simple Filing Checklist

MTD for VAT doesn’t have to be stressful. With a few smart habits and a clear checklist, UK small businesses can file accurately, avoid penalties, and keep cash flow predictable. Here’s a practical guide we use with clients across the UK.

Common MTD VAT mistakes to avoid

• Using the wrong VAT code Choosing 20% instead of 0%/5%, or using Exempt vs. Zero‑rated incorrectly. Watch out for mixed‑rated invoices and fuel receipts.

• Missing reverse charge on overseas software/services Many SaaS tools bill from abroad. Apply the correct reverse charge treatment where required.

• Duplicated or missing transactions Overlapping CSV imports or broken bank feeds create gaps or duplicates that skew VAT totals.

• Posting payment processor payouts as sales Stripe/PayPal/Amazon payouts are net of fees and refunds. Use clearing accounts and post fees correctly before transferring to bank.

• Not locking dates Back‑dated edits after submitting a return can throw out the next period. Lock VAT periods after submission.

• Treating staff meals, gifts, or motor expenses incorrectly Some items have restricted input VAT recovery—check HMRC guidance or ask your accountant.

• Ignoring CIS and domestic reverse charge for construction Apply CIS and domestic reverse charge rules accurately if you’re in construction.

• Filing late or paying late Triggers surcharges and interest. Plan your workflow so the return is ready days before the deadline.

Simple MTD VAT filing checklist (copy this workflow)

• Get your dates right Confirm return period and accounting basis (accrual/cash). Verify your VAT number and HMRC MTD connection in your software.

• Refresh and reconcile bank feeds Ensure statement balance matches Xero. Fix any gaps or duplicates before calculating VAT.

• Process all sales and purchase documents Post invoices/bills for the period. Attach documents via Hubdoc/Dext or directly in Xero for audit trail.

• Review VAT codes and anomalies Scan high‑value items, overseas purchases, mixed‑rated invoices, fuel, capital assets, and entertainment for correct VAT treatment.

• Check control accounts Reconcile VAT control, payables (AP), receivables (AR), and payment processor clearing accounts. Investigate odd balances.

• Run VAT reports In Xero, run the VAT Return report for the period. Drill down on Boxes 1–9 to confirm big movements and unexpected suppliers/customers.

• sanity checks Compare to prior periods. Explain any big swings (seasonality, one‑off assets, refunds).

• Lock the period and submit via MTD Submit through Xero’s MTD connection. Save/print the return PDF and transaction audit.

• Record payment or refund Post the HMRC payment/refund to the VAT control account on the actual bank date.

• Lock dates after submission Prevent late edits by locking VAT period and month‑end.

Tips for tricky scenarios

• Overseas SaaS (e.g., USD invoices) Consider reverse charge; check if the supplier is outside the UK and whether VAT was charged.

• eCommerce platforms Use A2X or similar to summarise marketplace transactions correctly for VAT and fees.

• Partial exemption If you make both taxable and exempt supplies, speak to your accountant about pro‑rata input VAT.

• Fuel scale charges If reclaiming on mixed business/private use, apply the scale charge where appropriate.

FAQs (add as collapsible Q&As or FAQ schema)

• Do I need MTD‑compatible software? Yes. Use software like Xero that’s connected to HMRC for MTD VAT submissions.

• How often are returns due? Typically quarterly, but monthly or annual schemes exist—check your HMRC settings.

• What records must I keep? Digital records of sales, purchases, and VAT codes for each transaction, plus evidence for adjustments.

Call to action Need a stress‑free VAT cycle? Banana Bookkeeping can review your VAT coding, tidy your books, and submit MTD VAT returns on time—every period. Book a free consultation.