VAT Returns On Xero And QuickBooks: The Step By Step Workflow BES Uses To Keep Clients Compliant
For VAT registered businesses, VAT returns on Xero and QuickBooks should not be treated as a quarter end filing exercise. The strongest process is to keep digital records accurate throughout the period, review the figures before submission, then file through compatible software. HMRC says VAT registered businesses should use Making Tax Digital for VAT unless an exemption applies, and compatible software must keep the required digital records and communicate with HMRC digitally.
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What Making Tax Digital Means For VAT Returns On Xero And QuickBooks
Making Tax Digital for VAT is about the records behind the return, not just the final figures. Required VAT records must be kept digitally in functional compatible software. Where more than one system forms part of the electronic account, relevant transfers normally need to use digital links rather than manual copying.
For businesses in London and across the UK, this makes accurate bookkeeping central to VAT compliance. Xero and QuickBooks can bring invoicing, purchase records, bank transactions and VAT reporting into one workflow, but software still needs correct setup and review.
BES Accountancy has expertise in both platforms and supports businesses with bookkeeping, VAT and computerised accounting systems. See how BES Accountancy uses Xero.
The Step By Step VAT Workflow BES Uses
Confirm The VAT Setup
The first check is whether the software reflects the business correctly. This includes VAT registration details, the accounting period, the relevant VAT scheme and how sales and purchases are recorded. HMRC requires key information such as the business name, principal place of business, VAT registration number and VAT accounting scheme to be held digitally.
Keep Sales And Purchase Records Current
Transactions should be recorded consistently during the VAT period, rather than reconstructed shortly before filing. Sales invoices, supplier bills, receipts and other relevant records need the correct dates, values and VAT treatment.
Bank feeds can reduce manual entry, but imported transactions still need to be matched and categorised properly. Automation improves efficiency only when the underlying bookkeeping is accurate.
Reconcile The Accounts
Before preparing the VAT Return, bank and accounting records should be reconciled. BES Accountancy reviews whether transactions have been matched, whether invoices are missing or duplicated, and whether unusual entries need attention.
Reconciled records also give owners a more dependable view of cash movement and the quality of the information they use for business decisions.
Review VAT Codes And Exceptions
The next stage is to examine transactions that may distort the return if they have been coded incorrectly. This can include unusual purchases, credit notes, adjustments and transactions where the VAT treatment requires closer attention.
Besnik Vata, Director of BES Accountancy, explains:
Making Tax Digital works best when the bookkeeping is accurate throughout the VAT period, because the return is then built from reliable digital records rather than a last minute reconstruction.
Review The Draft VAT Return
Once the books are reconciled, the draft VAT Return should be checked against the sales and purchase records. Significant changes from previous periods should be understood. Large balances, unexpected repayment positions or unusual movements should prompt a closer review before submission.
Submit Through Compatible Software
VAT Returns are usually required every three months. HMRC states that the online filing deadline is usually one calendar month and seven days after the end of the accounting period, and this is normally also the payment deadline. Businesses should check their own VAT account for the exact date.
The completed return is submitted through the Making Tax Digital connection. Filing confirmation should be retained, and payment should be planned so that it reaches HMRC by the deadline.
How This Workflow Helps Reduce Penalty Risk
Late VAT submissions use a points based penalty system. A business generally receives a penalty point for each late VAT Return until it reaches the relevant threshold. For quarterly returns, the threshold is four points. Once that threshold is reached, a £200 penalty applies, with further £200 penalties for subsequent late submissions while the business remains at the threshold.
Late payment is dealt with separately and can also lead to penalties and interest. A disciplined workflow helps reduce the risk of late filing and rushed records.
Final Thoughts
VAT returns on Xero and QuickBooks work best when filing is the final stage of an accurate bookkeeping process, not the point where records are first examined. Regular reconciliation, correct VAT coding, review of exceptions and timely submission provide stronger financial control as well as better compliance.
BES Accountancy, a London based accounting company serving clients across the UK, supports small and medium sized businesses, sole traders, partnerships and growing companies with bookkeeping, VAT, Xero and QuickBooks.
Frequently Asked Questions
Do All VAT Registered Businesses Need Making Tax Digital For VAT?
HMRC says VAT registered businesses should use Making Tax Digital for VAT unless they are exempt or have successfully applied for an exemption. Limited exemptions can apply where using digital tools is not reasonable or practical.
Can I Submit A VAT Return Directly From Xero Or QuickBooks?
Yes, where the software is configured as compatible software and connected correctly to HMRC. The return should still be reviewed before submission because automation does not confirm that every transaction has been recorded or coded correctly.
How Often Are VAT Returns Submitted?
Most VAT registered businesses submit a VAT Return every three months, although other accounting arrangements exist. The exact filing and payment dates should always be checked in the business’s VAT online account.
Can I Use Spreadsheets Under Making Tax Digital For VAT?
Yes, in some setups. HMRC permits more than one software product to form part of the digital record keeping system, but required transfers between systems must use digital links. Manual copy and paste does not count as a digital link.
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