Common VAT errors and how to correct them
The most common VAT errors - explained
Four VAT errors account for the majority of compliance issues we see in the first year of trading.
Error 1: wrong VAT codes in Xero
Applying No VAT to a standard-rated purchase loses the input VAT. Applying 20% to a zero-rated sale overcharges the customer and inflates Box 1. Always use the correct code. Flag uncertain transactions to us at the time of entry.
Error 2: missing reverse charge on overseas services
Services from Google, LinkedIn, Microsoft, and overseas contractors need the reverse charge code. Missing this understates Box 1. We configure the code in Xero during setup.
Error 3: claiming input VAT without a valid invoice
You need the original supplier invoice with their VAT number to reclaim input VAT. A bank statement alone is not sufficient. Attach every supplier invoice to the corresponding bill in Xero before approving.
Error 4: not declaring zero-rated income in Box 6
Zero-rated sales must appear in Box 6 even though no VAT is charged. Using No VAT instead of Zero Rated Revenue excludes the sale from Box 6 entirely.
💡 Good to know: Where your plan includes VAT returns, we review VAT codes before preparing each return. But corrections before submission are much faster than corrections after. Flag any uncertain transaction immediately.
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