4 Mins
VAT compliance remains one of the most challenging aspects of financial management for UK businesses. With HMRC scrutiny increasing and penalties for non-compliance growing steeper, understanding your VAT obligations is not just good practice – it’s essential for business survival. At Henderson Loggie, our VAT specialists work wth businesses across sectors to establish robust VAT systems that protect against costly errors and investigations.
Understanding your VAT status and requirements
The first step towards VAT compliance is determining whether your business needs to register. Currently, the VAT registration threshold stands at £90,000 of taxable turnover within any 12-month period. However, many businesses benefit from voluntary registration even when below this threshold.
Key compliance areas include:
Proper VAT registration status – Ensuring timely registration when thresholds are met
Accurate VAT returns – Submitting complete and correct returns by deadlines
Appropriate record-keeping – Maintaining detailed records for at least six years
Correct VAT rates – Applying the standard (20%), reduced (5%), or zero rates correctly
Valid VAT invoices – Including all required information on invoices
When we review VAT compliance, we frequently encounter businesses applying incorrect VAT treatments to their goods or services. This seemingly small error can lead to significant tax liabilities and potential penalties.
Common VAT compliance pitfalls
Our team regularly identifies several recurring issues that trigger VAT compliance problems:
Timing mismatches: Claiming input tax too early or accounting for output tax too late creates discrepancies that raise red flags with HMRC.
Partial exemption complications: Businesses making both taxable and exempt supplies must carefully calculate recoverable input VAT using approved methods.
Cross-border transaction errors: International sales and purchases involve complex VAT rules that vary by country and transaction type.
Digital services confusion: Special rules apply to electronically supplied services, creating frequent compliance issues.
Property transaction missteps: Property transactions have particularly complex VAT rules that often trip up even experienced business owners.
Building your VAT compliance framework
Creating a sustainable VAT compliance system requires attention to several key areas:
1. Implement Robust Record-Keeping
Comprehensive records form the foundation of VAT compliance. Your system should capture:
- All sales and purchase invoices
- Import and export documentation
- Evidence of zero-rated or exempt supplies
- Special scheme calculations and workings
Modern accounting software significantly improves record-keeping accuracy, with VAT-specific features that reduce manual processing errors.
2. Conduct Regular VAT Health Checks
Periodic internal reviews help identify potential issues before they become serious problems. We recommend quarterly self-assessments that:
- Reconcile VAT accounts with financial records
- Verify correct treatment of unusual transactions
- Review VAT coding in accounting systems
- Check compliance with any special schemes
3. Stay Updated on VAT Legislation
UK VAT regulations change frequently. Recent developments include:
- Making Tax Digital requirements
- Brexit-related changes to import/export procedures
- Domestic reverse charge for construction services
- Updates to cross-border digital services rules
A proactive approach to monitoring these changes prevents compliance surprises.
4. Invest in Staff Training
VAT knowledge gaps often cause compliance failures. Regular training for finance team members ensures everyone understands their responsibilities in maintaining VAT compliance.
When to seek professional VAT advice
While internal compliance measures are valuable, certain situations warrant specialist VAT advice:
- Business restructuring or acquisition activity
- Entering new markets or launching new products/services
- Property developments or substantial capital investments
- Responding to HMRC enquiries or assessments
- Planning for significant changes in business operations
How Henderson Loggie can support your VAT compliance
Our VAT team offers tailored support to businesses at every stage of their VAT journey. Services include:
- VAT health checks, compliance reviews & bespoke training
- Registration and deregistration assistance
- Special scheme implementation and management
- HMRC enquiry support and representation
- VAT planning and optimisation strategies
Our practical, business-focused approach helps clients achieve compliance while maximising legitimate VAT recovery opportunities.
Taking the next step
VAT compliance needn’t be overwhelming. With structured processes, regular reviews, and expert guidance when needed, your business can meet its obligations confidently while minimising VAT-related risks.
For personalised advice on strengthening your VAT compliance position, contact our specialist VAT team at Henderson Loggie today. We’ll help you develop a practical approach that works for your specific business circumstances.