Monthly or Quarterly VAT Returns: What's Best for Your Business?
Most businesses file VAT quarterly, but monthly returns can boost cash flow if you're a repayment trader. Here's how to choose the right VAT period.
Most VAT-registered businesses file and pay VAT quarterly, and for the majority that’s the right choice. You can switch to monthly VAT returns, and it’s usually worth doing if you’re a repayment trader who regularly reclaims more VAT than you pay, because monthly filing gets that cash back into the business four times faster. The decision comes down to one question: does your business normally pay VAT to HMRC, or reclaim it?
The default: quarterly VAT returns
When you register for VAT, HMRC puts you on quarterly VAT periods by default. That means four VAT returns a year, each covering a three-month stretch (your “VAT quarters”), with the return and payment due one calendar month and seven days after the period ends.
For most trading businesses this works well. You collect VAT on your sales, deduct the VAT on your purchases, and pay HMRC the difference every three months. Quarterly reporting keeps your admin down to four filings a year while still spreading VAT payments across the year rather than landing one big annual bill.
If your business consistently owes VAT to HMRC, quarterly is almost always the sensible default. There’s little to gain from filing monthly, and you’d simply be doing three times the paperwork.
When paying VAT monthly makes sense
Monthly VAT returns exist mainly for one type of business: the repayment trader. You’re a repayment trader if you routinely claim more VAT back from HMRC than you charge your customers, so most returns end in a refund rather than a payment.
This is common when:
- Your sales are zero-rated (for example, most food, children’s clothing, books, or exports) but you still pay standard-rate VAT on your costs. You’re always in a repayment position.
- You’re in a heavy investment or start-up phase, buying stock, equipment or building work faster than you’re invoicing.
- You export a large share of your goods or services.
If any of these describes you, waiting three months for a VAT refund can tie up cash you need to keep trading. HMRC normally allows regular repayment traders to file monthly returns, which means you reclaim your VAT twelve times a year instead of four. HMRC usually pays repayments within 30 days of receiving your return, so monthly filing can make a real difference to cash flow.
The trade-off is simple: more frequent returns mean more admin. So monthly filing pays off when the cash-flow gain outweighs the extra bookkeeping, which is exactly the case for most repayment traders.
If you’ve already weighed this up and decided to switch, here’s our step-by-step guide on how to change your VAT periods.
A third option: the annual accounting scheme
There’s a common mix-up worth clearing up. “Paying VAT monthly” can mean two very different things:
- Monthly VAT returns, you file a return every month (the repayment-trader route above).
- The VAT Annual Accounting Scheme, you file just one VAT return a year, but make advance payments monthly (or quarterly) towards the bill.
The annual accounting scheme is designed to smooth out cash flow for businesses that pay VAT. Instead of four lumpy quarterly bills, you make nine monthly instalments based on your last year’s VAT (or an estimate if you’re newly registered), then a single balancing payment or refund when you submit your annual return.
To join the annual accounting scheme, your estimated VAT taxable turnover must be £1.35 million or less. You must leave the scheme once your turnover goes above £1.6 million.
The catch for repayment traders: under annual accounting you only reclaim your VAT once a year, when you file the annual return. If your business is regularly owed money by HMRC, that’s the opposite of what you want. In that situation, monthly returns beat the annual scheme every time.
Quick comparison: which VAT period suits you?
| Your situation | Best fit |
|---|---|
| You normally pay VAT to HMRC | Quarterly returns (the default) |
| You want to smooth VAT payments into instalments | Annual accounting scheme |
| You regularly reclaim VAT (zero-rated sales, exports, heavy investment) | Monthly returns |
| Turnover above £1.6m and after simpler admin | Quarterly returns |
Choosing well is genuinely worth getting right, because the wrong VAT period can quietly starve your business of cash. If you’d like a second opinion on the numbers, our outsourced finance and part-time FD support can model the cash-flow impact for your specific business before you commit.
Don't forget Making Tax Digital
Whichever period you choose, remember that Making Tax Digital (MTD) for VAT is mandatory for all VAT-registered businesses. You must keep digital VAT records and file every return through MTD-compatible software. That applies equally to monthly, quarterly and annual accounting returns, so factor it into whatever routine you settle on.
Frequently asked questions
Can I pay VAT monthly?
Yes. You can ask HMRC to move you to monthly VAT returns, which is normally allowed for regular repayment traders who reclaim more VAT than they charge. If instead you want to spread VAT payments into monthly instalments, the Annual Accounting Scheme does that while you file just one return a year.
When do you pay VAT as a business?
On standard quarterly periods, your VAT return and payment are due one calendar month and seven days after the end of each VAT quarter. On monthly returns the same deadline applies each month. Under the annual accounting scheme you make advance payments through the year and settle the balance with your single annual return.
What are VAT quarters?
VAT quarters are the three-month periods a standard VAT-registered business reports over. HMRC assigns you one of three quarterly cycles (staggers) when you register, so your quarter-ends might fall in March/June/September/December, or one of the other two patterns.
Is it better to file VAT monthly or quarterly?
Quarterly is best for most businesses because it means less admin and still spreads payments. Monthly is better if you’re a repayment trader, because you get your VAT refunds back four times faster and protect your cash flow.
Need a hand
If you're not sure whether monthly, quarterly or annual accounting is right for your business, we're happy to run the numbers with you. Give the FD Works team a
If you’re not sure whether monthly, quarterly or annual accounting is right for your business, we’re happy to run the numbers with you. Give the FD Works team a call on 01454 300 999 or email [email protected] and we’ll help you choose the VAT period that works hardest for your cash flow.