Ten VAT Tips to save you time and money

1. Pay VAT on time

This avoids penalties. HMRC (Her Majesty’s Revenue & Customs) will charge you a percentage of the VAT that is unpaid at the due date if your VAT return is late. The first time it happens, you’ll be let off, but you’ll get a warning. After that, within the following twelve months, you’ll be assessed for a surcharge (which could reach 15%.)

2. Pay VAT online

If you pay online you can extend the credit, and get up to seven extra calendar days from the standard due date for the return and payment to reach HMRC.

3. Charge the right amount

Ensure you’re charging the right amount of tax. Is it 17.5 per cent, 5 per cent, zero or exempt? Getting it right could improve profit margins. If you’re not sure it’s often worth getting expert advice.

4. Use the Annual Accounting Scheme

This scheme, for which 1 million VAT registered businesses are eligible, allows you to pay VAT in nine monthly instalments, followed by a balancing payment, each year. You can use this scheme if your annual turnover (excluding VAT) won’t exceed £1.35 million. The main benefits are that you won’t receive big VAT bills at the wrong time because you spread your payments throughout the year; easier cash planning, and less time spent on VAT because you only have to fill in one return a year instead of the usual four.

5. Use Cash Accounting

Under the cash accounting scheme, which you can use if your annual turnover is no more than £660,000, you only pay the VAT on invoices which have been paid. You can stay in the scheme until your turnover reaches £825,000

The main benefit of this scheme is that it helps your cash flow, particularly if your customers pay you late, although it also means you can’t reclaim VAT on purchases until you pay your suppliers.

6. Use simplified accounting – the flat rate scheme

The flat rate scheme could help you by letting you calculate your VAT payment as a flat rate percentage of your turnover. The percentages are decided according to the trade sector your business is in. Under the scheme you won’t be able to reclaim any of the VAT you pay, as this is taken into consideration as part of the percentage calculation.

The good thing about the flat rate scheme is that it saves you time and possibly money - and you don’t have to account for the VAT charged on each individual purchase and sale.

7. Get it in writing

Always get any decision from HMRC in writing – it’s an insurance policy.

8. Get a VAT invoice

Always get a VAT invoice for all purchases – then you can claim it back.

9. Check before you claim

Don’t claim VAT back on purchase of cars, business entertainment or non-business expenditure. If you do, you may incur penalties and interest.

10. Claim quickly

Claim all expenses as soon as possible, to maximise your cashflow.

About the Author

John Crawford founded the VAT Consultancy in 1991 and is the managing director. His extensive prior professional experience includes 19 years with Customs and Excise. The firm of eight consultants provides advice and planning guidance for a wide range of clients and has particular expertise in the VAT issues relating to land and property transactions/development, charity exemptions and cross-border trading. Contact: john.crawford@thevatconsultancy.com; 01962 735350.