VAT returns shouldn’t feel like guesswork. Yet many business owners sign off on them without really knowing what the numbers mean - and that can be risky. VAT returns don’t have to be a mystery. At Arnold Hill & Co, we make sure you understand exactly what’s being reported before anything goes to HMRC - so you stay compliant, confident, and in control.
Understanding VAT return boxes
Here’s a clear breakdown of what you’ll see in your VAT return and what each section means.
What’s in your VAT Return Summary Page – Boxes 1 to 9
The first page of your VAT return shows the key figures that HMRC will receive:
- Box 1 – VAT due on sales: The total VAT you’ve charged customers.
- Box 2 – VAT due on acquisitions: VAT due on goods brought into the UK from the EU (less common post-Brexit).
- Box 3 – Total VAT due: The sum of Boxes 1 and 2.
- Box 4 – VAT reclaimed on purchases: The total VAT you can reclaim from supplier invoices.
- Box 5 – Net VAT payable or reclaimable: The difference between Box 3 and Box 4. This is the amount either payable to HMRC or refundable to you.
- Box 6 – Total sales (ex VAT): The net value of all sales and outputs, excluding VAT.
- Box 7 – Total purchases (ex VAT): The net value of all purchases and inputs, excluding VAT.
- Box 8 – EU sales and Box 9 – EU purchases: Only relevant if your business trades goods with the EU.
Not sure what these figures mean for your business cash flow? We can help interpret them – contact us today.
Transaction Breakdowns in my VAT Return – Boxes 1 and 4
The supporting pages show the transactions making up Boxes 1 and 4. You’ll see exactly which sales and purchases make up the numbers, so nothing is hidden or unclear.
You may occasionally see late claims included here, these are transactions from an earlier VAT period that weren’t captured at the time, but can still be reclaimed or reported in the current return.
Understanding Boxes 6 and 7 in my VAT Return
Boxes 6 and 7 often cause confusion because they don’t always match the breakdowns in Boxes 1 and 4.
- Box 6 shows your total net sales figure – it captures all outputs, not just the ones with VAT charged. This is why Box 6 is higher than Box 1’s supporting breakdown.
- Box 7 is your total net purchases – including transactions across all VAT rates. This is why it’s different to Box 4.
Within Box 7, you’ll see expenses categorised as:
- 20% VAT – standard-rated goods and services.
- Zero-rated expenses – goods like children’s clothing or basic food.
- Exempt expenses – goods and services that are still taxable but charged at 0%. Common examples include most food and drink (excluding things like alcohol and restaurant meals), children’s clothing and footwear, books and newspapers, public transport fares, and exports of goods outside the UK. Even though no VAT is charged, these transactions still need to be reported on your VAT return.
- No VAT – transactions outside the VAT system (e.g. salaries, loan repayments, or journals).
It’s important to note that “No VAT” items don’t affect the VAT return at all, but Xero includes them in the report for transparency. You can expect to see payroll journals, depreciation, director loan transactions, or intercompany payments here.
This is where many businesses go wrong - but we make sure you don’t.
Why this matters
By breaking down your VAT return in this way, we ensure you not only approve the numbers, but also understand the story behind them. This gives you confidence that your return is accurate, compliant, and a fair reflection of your business activity.
At Arnold Hill & Co LLP, our goal is to make VAT reporting simple and transparent. Whether it’s making sense of the numbers or planning ahead for cash flow, our Outsourced Finance team can help you turn your VAT return into a tool for better decision-making.
If you’d like to discuss your latest return in more detail, get in touch with our Outsourced Finance Department today.
Author, Mithursan Alagendran - Outsourced Finance
Mithursan.Alagendran@ArnoldHill.co.uk
