vat tips

Many business owners prepare VAT returns on their own.  That takes up valuable time that they could be using to do something else for their business instead.  That is why it is very important to ensure that you claim back everything you can and also reduce your risk of error simultaneously.

Know Your VAT

Business owners are commonly losing out when it comes to VAT.  You need to know that you are paying the right amount and consider looking at the Flat Rate Scheme.  A lot of businesses are not aware of the Flat Rate VAT scheme, but this could be the best option for your business. This scheme is ideal for any business as it can be a surprising source of profit.

As the name suggests, under the Flat Rate scheme you are going to pay a flat rate of VAT.  HMRC has a list of the flat rates that are available for the different industries.  An estate agent or property manager will pay 12% while a computer or IT professional will pay 14.5%.  You will be choosing the VAT rate which is applicable to your industry and then apply this to your gross turnover.  This will be the amount that you then pay to HMRC.

The VAT on your purchases cannot usually be reclaimed, but you can keep the difference between the VAT you charge the customer which is generally 20%.  HMRC will also give you a 1% discount on your first year of registration.  Companies such as VATGlobal will be able to help you determine what VAT you should be paying and help you get the benefits of the Flat Rate scheme.

The following are our best five VAT tips to make your tax position much more efficient:

Don’t forget to claim VAT on your mileage

Many business owners, particularly those who own a limited company, claim their mileage in order to cover business vehicle expenses, usually at a rate of 20 pence or 45 pence per mile.  VAT can be claimed back on the fuel element of your mileage claims.  To determine the fuel element, the advisory fuel rates from the HM Revenue & Customs is used.  Once the correct fuel rate per mile is found, multiply it by your number of miles.  The 1/6 VAT fraction is then applied, and that is the amount you are able to claim back.

Allow us to help you select the best VAT scheme to use for your business

Several different VAT schemes are available that can benefit your business.  For instance, depending on which industry sector is relevant for your company, you might benefit from using the flat rate VAT scheme.  With this scheme, you simply calculate VAT as a percentage of your total gross sales (e.g. for catering businesses it is 12.5%).  It is easy to calculate and you might also end up paying less money to HM Revenue & Customs since the VAT that is calculated with this method might be less compared to the standard method that many businesses use.

Claim back VAT on your bad debts.

Whenever a customer debt is outstanding for over six months, and it is unlikely that you are going to receive a payment, you may reclaim sales VAT that you paid previously to HM Revenue & Customer.  It is essential to regularly review who owes you money.  One thing you can do to avoid needing to reclaim VAT on your bad debts is to utilize the VAT cash accounting scheme.  With this method you do not include VAT on a sale in your VAT returns until you have been paid by your customers (or the VAT on purchases until you pay for them).

Keep a separate bank account solely for VAT

VAT is a tax that is collected by business owners for HM Revenue & Customs.  Managing your cash flow is very important, and it is very easy to accidentally spend VAT as part of your working capital.  This can result in not having the cash available when your HM Revenue & Customs quarterly payment is due.  One good way of preventing this problem is to set a separate bank account up and then each month set your VAT aside in this account.  That way at the end of each quarter you won’t end up with a nasty surprise.

Use quality software

When user friendly accounting software is used, you can reduce your risk of errors.  Good accounting software records when certain invoices have been included on a specific VAT return.  That should eliminate your risk of VAT on invoices that are received late not being claimed or VAT being declared two times.  When cloud based software is used it makes easier for your VAT returns to be reviewed by your account before filing them.  If you need assistance, we can help you determine whether FreeAgent, Kashflowor Xero is the best software package for your business.

5 Best VAT Tips For Businesses
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