The VAT control account is a single general ledger liability account that collects output VAT on sales as credits and input VAT on purchases as debits, plus any adjustments. At the end of each VAT period its balance for that period should equal box 5 of the VAT return, and the payment to HMRC (or the repayment received) clears it to nil. HMRC calls the underlying record the VAT account, and every VAT registered business must keep one.

What is the VAT control account, and is it the same as HMRC’s VAT account?

VAT Notice 700/21 (section 5) describes the VAT account as the link, or audit trail, between a business’s records and its VAT return. Every VAT registered business must keep one, but HMRC sets no fixed format. It must show the output tax owed on sales, tax due under the reverse charge, tax payable after corrections, and any other adjustments, and on the other side the input tax the business is entitled to claim and any corrections in its favour.

In a double entry system, the VAT control account in the nominal ledger is the natural place for that record. Some packages split it into a sales VAT account and a purchase VAT account and net them on the return; others use one account. Either works, provided the postings can be traced back to the invoices behind them. Notice 700/21 also says the VAT account records must be kept digitally in functional compatible software, so for most businesses the control account in their software is their electronic account.

How does VAT on sales and purchases reach the control account?

When a sales invoice is posted, the customer is debited with the gross amount, sales is credited with the net amount and the VAT is credited to the control account. A purchase invoice is the reverse. The control account works alongside the sales and purchase ledger control accounts, which hold the gross balances owed (see ledger control accounts).

Transaction VAT control account Other side
Sales invoice Credit with output VAT Debit customer (gross), credit sales (net)
Credit note issued Debit with output VAT reversed Credit customer, debit sales
Purchase invoice Debit with input VAT Credit supplier (gross), debit expense or asset (net)
Credit note received Credit with input VAT reversed Debit supplier, credit expense
Payment to HMRC Debit Credit bank
Repayment from HMRC Credit Debit bank

Notice 700/12 confirms the treatment of credit notes: VAT on credit notes you issue is deducted from box 1. Input VAT on business entertainment and on goods bought wholly for private use must not be included in box 4, so those amounts should be posted gross to the expense account rather than to the control account.

Which other entries belong in the control account?

  • Reverse charge. The customer accounts for the supplier’s VAT, so the same amount is credited as output tax and, where recoverable, debited as input tax. See the construction reverse charge.
  • Fuel scale charges and private use. Notice 700/12 lists fuel for private motoring under a scale charge, goods taken for private use and gifts costing more than £50 excluding VAT as outputs for box 1.
  • Bad debt relief. Under Notice 700/18 the VAT on a debt unpaid for 6 months after the later of the due date and the date of supply, and written off to a separate bad debt account, is reclaimed in box 4. Any later recovery is repaid through box 1.
  • Partial exemption and capital goods scheme adjustments, which Notice 700/21 lists among the adjustments the VAT account must record. See partial exemption.
  • Error corrections made on a current return under Notice 700/45.

How do you reconcile the control account to the VAT return?

  1. Run the VAT return for the period and save the box 1 to box 9 report with its transaction listing.
  2. Take the control account balance at the period end date and remove the balance brought forward from the previous period, which should be the previous return’s box 5 not yet paid.
  3. Compare what remains with box 5. They should agree.
  4. Explain any difference item by item: entries dated in the period but posted after the return was run, manual journals coded to the VAT account, and payments posted to the wrong period.
  5. Check that the previous quarter’s payment cleared the previous quarter’s liability exactly.
  6. Agree box 6 and box 7 in total to sales and purchases in the nominal ledger, allowing for outside the scope and exempt items.

What does a reconciliation look like?

Illustration only. A business with quarters ending 30 June has these figures for the quarter:

Item Debit Credit
Balance b/f: March quarter box 5 £6,500
Payment of March quarter VAT in May £6,500
Output VAT on sales invoices £12,000
Output VAT on credit notes issued £200
Input VAT on purchase invoices £4,000
Balance c/d at 30 June £7,800

Box 1 is £11,800, box 4 is £4,000 and box 5 is £7,800, which agrees with the control account. If a supplier invoice dated 28 June carrying £300 of VAT is posted on 10 July after the return has been filed, the control account at 30 June will show £7,500 while the return showed £7,800. That £300 is a reconciling item, not a reason to change the ledger.

Notice 700 says that input tax not claimed in the period in which you were first entitled to deduct it is an error and cannot simply be deducted on a later return. It is corrected under Notice 700/45, which allows a net error of up to £10,000, or up to £50,000 if it does not exceed 1% of box 6 for the current period, to be adjusted on the next return. Larger or deliberate errors must be disclosed separately. See correcting VAT errors.

When does the balance clear, and what does it show at the year end?

The return and payment are usually due one calendar month and 7 days after the end of the VAT period, according to HMRC’s guidance on submitting returns. Once the payment is posted, the period’s liability goes to nil and only the current, unfiled period remains. At the financial year end the control account therefore normally holds the last filed quarter if unpaid plus VAT on the part quarter since then. It appears in the balance sheet as a creditor, or as a debtor if the business is in a repayment position.

Under the cash accounting scheme VAT is due when cash moves, not when invoices are raised, so software usually holds invoice VAT in a holding account and moves it to the control account on payment. On the flat rate scheme the control account reflects the flat rate percentage applied to turnover, not the VAT on individual invoices.

Does Making Tax Digital change anything?

Notice 700/21 requires records that make up the electronic account to be held in functional compatible software. Where more than one product is used, the data must move between them by a digital link. HMRC states that cut and paste or copy and paste is not a digital link. A spreadsheet that summarises the control account and is retyped into bridging software therefore breaks the rules even if the numbers are right. See Making Tax Digital for VAT.

What mistakes come up most often?

  • Posting the HMRC payment to an expense or to the wrong period, so the control account never returns to the previous box 5.
  • Journals posted directly to the VAT account, such as reclassifications, that never appear on a VAT return.
  • Claiming VAT on entertainment, private purchases or invoices without a valid VAT invoice.
  • Changing transactions in a period already filed, so the ledger no longer matches what HMRC received.
  • Leaving a small unexplained balance from years ago. Each old balance should be traced and corrected, since HMRC normally assesses up to 4 years back.

Notice 700/21 says VAT records should generally be kept for at least 6 years, so keep the saved return report and reconciliation for each quarter with the working papers.

Solar Protect provides tax investigation insurance for businesses and fee protection schemes for accountancy practices. Read how our cover works or get a quote.

Related Accountapedia entries

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.