Get your VAT right

How can you make sure your business is not paying too much VAT, or simply paying the right VAT?

Firstly, VAT registration – Don’t just presume the standard VAT scheme is right for you. Many businesses register for VAT because they are forced to due to the threshold which is currently £70,000 so check you are on the right scheme.

The flat rate scheme may be more appropriate if you don’t have a lot of purchases or many of your purchases may not have VAT on. Your accountant should check at least annually to make sure that you are on the right VAT scheme as a matter of course, however if you use a bookkeeper or accountant to do your VAT returns they should be reviewing your VAT returns each quarter to look for tax savings and check you are on the right scheme.

Importantly, when you first register for VAT you can claim back the VAT on purchases you have made for the company up to four years previously for assets that still remain in the business things like computers, office equipment, machinery etc so it is important to go back through your records and make sure you have claimed everything you can!

Secondly, how you calculate your VAT is important too – if your turnover is below £1.35m you can account for your VAT by cash accounting.

If you do calculate your VAT on an invoice basis don’t forget VAT bad debt relief can be claimed after 6 months if your clients haven’t paid you.

Finally, make sure you are not claiming VAT for purchases and services that do not have VAT on them – in a nut shell if there is no VAT receipt you cannot claim VAT back! Some typical mistakes that I have seen are people claiming VAT on Google Adwords, Insurances, Business Rates, HP repayments generally, Loans, wages, tea and coffee, newspapers & magazines, postage etc.

When processing your transactions make sure you have claimed the VAT on all your allowable expenses and make sure you have claimed the right amounts of VAT too as not everything has the standard VAT rate. Check small receipts like car parking tickets for VAT numbers, because it all adds up!

VAT can be a bit of a mind field and there is lots of helpful guidance on the HMRC website and don’t forget as a business owner it is your responsibility to get it right. In the event of an investigation the excuse ‘I didn’t know’ or ‘I thought I could’ simply won’t wash.

My final tip would be that you went into business because you are good at what you do, outstanding in your profession, therefor spend your time what you enjoy doing and what you are good at doing and let someone else do the VAT, saving you time and a potential tax headache!

Just ask ‘Sara Saylavy’!