VAT (Value Added Tax) is a key part of doing business in the UK – yet many small and medium-sized enterprises (SMEs) get it wrong. From registration issues to claiming ineligible input VAT, these mistakes can lead to hefty penalties, overpayments, or HMRC scrutiny.

In this guide, we highlight the most common VAT pitfalls and how to avoid them. Whether you’re a sole trader or managing a limited company, getting VAT right is crucial. At Pro-AccX, we help businesses across the UK with accurate, compliant, and stress-free VAT return services – so you can focus on growth.

1. Missing the VAT Registration Threshold

One of the most frequent errors businesses make is not registering for VAT when legally required. As of April 2024, the VAT registration threshold is £90,000 in taxable turnover over a rolling 12-month period.

What goes wrong?
Many businesses mistakenly calculate VAT thresholds based on their financial year or assume they only need to register at year-end. Others simply lose track of their cumulative turnover.

Why it matters:

• Late registration can result in:
• Backdated VAT liabilities
• Interest on unpaid VAT
• Financial penalties from HMRC
• Damage to your compliance record

Solution:
At Pro-AccX, we monitor your monthly turnover to help ensure timely registration. We’ll also guide you through the registration process, including advice on whether voluntary registration might benefit your business.

2. Choosing the Wrong VAT Scheme

HMRC offers several VAT schemes, including:

• Standard VAT Accounting
• Cash Accounting Scheme
• Flat Rate Scheme
• Annual Accounting Scheme

Each has pros and cons depending on your turnover, sector, and cash flow.

Common mistakes:

• Staying on Standard Accounting when Cash Accounting could ease cash flow
• Using the Flat Rate Scheme without understanding what’s reclaimable
• Not reviewing schemes as your business grows

Why it matters:

The wrong scheme can lead to:

• Paying VAT before receiving customer payments
• Losing out on allowable input VAT
• Administrative burdens

Solution:
Pro-AccX reviews your business profile and recommends the most efficient VAT scheme. We assess your transaction volume, client payment terms, and sector-specific rules to ensure you get the best fit.

3. Applying Incorrect VAT Rates

Different products and services attract different VAT rates:

• Standard rate (20%) – most goods and services
• Reduced rate (5%) – home energy, children’s car seats
• Zero rate (0%) – most food and children’s clothes
• Exempt – health services, education

What goes wrong?

• Applying 20% VAT to exempt or zero-rated goods
• Failing to understand cross-border VAT rules
• Charging VAT incorrectly on services for overseas clients

Why it matters:

Inaccurate rates lead to:

• Overcharging clients
• Underpaying VAT to HMRC
• Risk of audit and penalties

Solution:
We help Pro-AccX clients set up correct VAT codes in their accounting software and routinely review how VAT is applied on invoices. If you’re unsure about rates or exemptions, we’ll give clear, practical advice.

4. Missing VAT Filing Deadlines

Most UK businesses must submit a VAT return every three months. The deadline is one calendar month and 7 days after the end of your VAT period.

Common errors:

• Not setting up reminders
• Leaving data entry to the last minute
• Overlooking HMRC’s new penalty points system

Why it matters:
Even one missed deadline could result in:

• A penalty point on your HMRC record
• Fines starting at £200 after repeated late returns
• Interest charges on unpaid VAT

Solution:
Pro-AccX provides calendar tracking, monthly bookkeeping, and automatic reminders to help you file on time, every time. We handle the whole process so deadlines aren’t a burden.

5. Not Being MTD-Compliant

Making Tax Digital (MTD) requires all VAT-registered businesses to:

• Keep digital records
• Use HMRC-compatible software to submit returns

What goes wrong?

• Continuing to file manually
• Using spreadsheets without bridging software
• Using outdated software that doesn’t support MTD

Why it matters:

• MTD non-compliance can result in:
• Rejected returns
• HMRC warnings and penalties
• Time-consuming corrections

Solution:
Pro-AccX works with Xero, QuickBooks, and FreeAgent, all MTD-compliant platforms. We’ll help you set up, maintain, and submit your VAT data in full alignment with HMRC requirements.

6. Overclaiming or Underclaiming VAT

Claiming input VAT on business expenses is key to reducing your VAT bill, but mistakes here are common.

What goes wrong?

• Reclaiming VAT on personal items or entertainment
• Missing VAT on allowable expenses due to lost receipts
• Claiming VAT without a proper VAT invoice

Why it matters:
Overclaiming can trigger HMRC investigations, while underclaiming leaves money on the table.

Solution:
Pro-AccX helps you track and store receipts digitally, so you can claim what you’re entitled to – no more, no less. We ensure every VAT reclaim is valid and backed by records.

7. Poor Record Keeping

HMRC expects you to keep VAT records for at least 6 years, including:

• Sales and purchase invoices
• VAT account summaries
• Digital records under MTD

What goes wrong?

• Inconsistent bookkeeping
• Lost paper receipts
• Disorganised folders with missing documentation

Why it matters:
Poor records can result in:

• HMRC penalties
• Inability to support VAT claims
• Extra work at year-end

Solution:
Our cloud-based system makes record-keeping simple. You’ll always have access to clear, compliant records, and we’ll handle the organisation for you.

How Pro-AccX Helps You Avoid VAT Headaches

Pro-AccX offers tailored VAT return services that help your business stay compliant, efficient, and stress-free.

Our VAT support includes:

• Full VAT return preparation and filing
• Scheme selection advice (Cash, Flat Rate, Standard)
• MTD-compliant submissions via Xero, QuickBooks or FreeAgent
• Ongoing review of invoices, rates, and reclaims
• Remote support across the UK

We don’t just file your return — we guide your business strategy around VAT. From tax savings to reduced admin, you’ll benefit from reliable, proactive service.

Book a Free VAT Review

Don’t let small VAT errors lead to big problems. Contact Pro-AccX today for a free consultation and find out how we can support your business with accurate, professional VAT returns.