Underneath it's simple exterior, VAT is a mass of complexity. Here we explain what VAT is and share 5 of our top tips.
What is VAT?
Value Added Tax (VAT) is a tax on consumption. It applies to most goods and services that are bought and sold for use or consumption in the UK.
The standard rate is 20%, chargeable on most goods and services. There is also a 5% 'reduced rate' covering a limited range of goods and services, as well as a zero-rate applied to such things as essential food and children's clothing.
Tip 1: Recover VAT on your mileage claims
Many business owner's, especially those who own limited companies, will claim mileage to cover their business motor expenses, typically at a rate of 45p, or 20p per mile.
However, many are unaware that it is possible to claim VAT back on the fuel element of these mileage claims ( if you are VAT-registered)
Tip 2: Choose the right VAT scheme for your business
There are numerous VAT schemes that your business could benefit from. For example, depending on the relevant industry sector, you may benefit by being on the flat rate VAT scheme.
Under the flat rate scheme, VAT is simply calculated as a percentage of your gross sales (e.g. 12.5% for catering businesses). As well as being simple to calculate, you may also pay less to HMRC.
Tip 3: Recover VAT associated with bad debts
If your business accounts for it's VAT on the accruals basis and it has a customer's debt which has been outstanding for more than six months, it could be possible to reclaim any output (sales) VAT already paid to HM Revenue & Customs.
Tip 4: Slow down your VAT payments
If most of your business outputs (sales) are made on account, it might be better to account for any VAT due using the cash accounting system. This is where, subject to certain conditions, you do not include VAT from a sale on your VAT returns until your customers have paid you, or you do not include the VAT from purchases until you have paid for them.
Tip 5: Always use good software
As part of its Making Tax Digital initiative, HMRC is convinced that by using cloud based software, businesses will reduce the volume of careless errors and mistakes that they make.
Reduce the risk of errors by adopting user friendly accounting software, such as QuickBooks. This should eliminate the risk of VAT being declared twice and VAT on late-received invoices not being claimed at all.
It also makes it clearer for us to review your VAT returns prior to filing.
Why not let us do what we are good at by advising you on the best way to comply with HMRC's myriad of VAT regulations - while you concentrate on what you are good at, running a profitable business. We will ensure that you get advice from an appropriately qualified advisor.