Top 10 VAT Tips for Small Businesses

HM Customs have provided some useful tips on how to simplify VAT for small businesses, which we have reproduced below. For in-depth information on the ways to calculate your VAT liabilities, you can visit the HMCE site here. You can also read our own overview of Value Added Tax.

Top Ten Value Added Tax (VAT) Tips

1. Making contact with Customs and asking for advice.

Customs has a National Advice Service helpline – 0845 010 9000 – open from 8am to 8pm, Monday to Friday. If you want any help or advice you can ring the helpline or, alternatively, you can find information on their website – www.hmce.gov.uk.

2. Plan ahead and know when to register for VAT.

Be clear about the impact of VAT on growing your business turnover. Make sure your business plan looks at how you will deal with the impact of registering for VAT. For example, if you provide services to members of the public, registering for VAT may have major implications for your pricing structure.

3. Monitor your turnover so that you know when you are approaching the VAT registration threshold.

If you do register for VAT, Customs wants to work with you to help make the process as simple as possible. Apply to register in plenty of time so that you have your VAT number when you need it. There are a number of schemes to make dealing with VAT easier. For example, the “cash accounting” scheme means that you only pay the VAT to Customs after you have been paid by your customer.

The “Flat Rate Scheme” can help reduce the time spent on VAT bookkeeping. When you register always ask what schemes are available to make paying your VAT easier. Customs can give you leaflets showing how these schemes work.

4. Always keep your books up-to-date and check accounting documents.

Good book keeping is a vital part of good overall business management. Keep your books updated or it will be a major headache sorting them out months later. Always check documents you receive, for example, you must have a “VAT invoice” to claim back VAT – a “statement” is not a proper invoice. Always enter cash receipts in your books before using the cash to make purchases.

5. Always speak up if things go wrong or there’s something you don’t understand

Customs genuinely wants to help businesses get things right. If you find yourself unable to send your VAT Return or cheque on time, phone Customs on 0845 010 9000 to tell them why. Customs may be more sympathetic than you think. Consider making a part payment to reduce the surcharge payment but also contact Customs’ National Advice Service.

6. When giving Customs information, always give the full facts and quote your VAT number

To help businesses Customs needs the full facts when dealing with your affairs. When you apply to register for VAT, and later if you need to write to Customs about other matters, always give the full facts – don’t write “don’t know” or “not yet decided” if the box asks for specific information. Customs needs the information to stop fraud as well as to provide you with a better customer service. Always quote your VAT number on correspondence or delays will occur.

7. Manage the VAT within your business cashflow

Many businesses take advantage of the VAT they’ve collected, making it work for them before it has to be paid to Customs. This can help reduce a business’s borrowing requirements and save you interest charges. But this has to be managed carefully, perhaps in a separate bank account. The VAT you have collected, less what you can reclaim, belongs to Customs and will have to be available to pay Customs when your Return is due.

8. Don’t worry if Customs make contact with you

You should not worry if Customs make contact with you. Customs do contact businesses from time to time and they may want to visit your business. Don’t be concerned if Customs visit you, they will tell you why they want to visit and what information they will want to see.

9 If you’re in doubt – Shout!

The golden rule is – if you’re not sure ask. Customs would much rather be asked any number of questions than for you to make a mistake because you’re not sure what to do. It is in the interests of both Customs and the business to get things right from the start, if you’re in doubt – shout!

10 If, at the end of the day, you’re not happy with Customs – complain

If you are unhappy about the way Customs has dealt with you, they want to know about it so they can try to put things right. Customs has an effective complaints system through which your concerns can be investigated, and they encourage you to use it where you remain unhappy. Customs aims to respond within 10 working days and, if they can’t, tell you why and let you know when they will reply in full. More details are contained on Customs’ website.