If you are registered for VAT, have to file a VAT return in the near future, or are concerned about putting the wrong amounts on your VAT return, here are 5 VAT traps to watch out for.
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VAT Guides
Value Added Tax (VAT) is a tax on the final consumption of certain goods and services in the home market but is collected at every stage of production and distribution. Most business-related goods and services will therefore be subject to VAT.
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If you want to increase profits or cut costs, make sure you reclaim all the VAT you can.
It sounds obvious, doesn’t it? But even before the global economic slowdown began Ernst & Young surveys revealed “a surprising tolerance of failures to track, fully report and legitimately reclaim indirect taxes”. Businesses of all sizes are losing significant sums this way.
In this summary, we will focus only on the mountain of foreign EC VAT that goes unreclaimed.
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Alongside the standard VAT rules, some small businesses may be better off by operating within the flat rate VAT scheme which has been running since 2002.
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Your business should register for VAT if your “taxable supplies” over the past 12 months has exceeded the VAT registration threshold. The threshold is currently £73,000 (as of 1st April 2011. Previously it was £70,000). It is important to remember that VAT applies to the company’s turnover, not profit.
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To check whether a UK VAT number is valid, you can call the HM Revenue & Customs (HMRC) VAT Helpline on 0845 010 9000. Lines are open 8.00 am to 8.00 pm Monday to Friday.
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If your business qualifies, and you are not already using the scheme, the VAT Cash Accounting scheme could be a lifesaver, especially during times when lenders refuse to lend!
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This handy calculator will work out how much VAT you should charge a customer based on your net billing. Also use this script to work out how much VAT is included in a VAT-Inclusive sum.
The current VAT rate used in the calculations is 20%.
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HM Customs have provided some useful tips on how to simplify VAT for small businesses, which we have reproduced below.
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The issue of VAT accounting when the goods involved are put to both business and non-business purposes is perhaps more widespread than many would first consider.
Careful use of the so-called ‘Lennartz Accounting’ scheme can provide cash flow benefit for a number of organisations.
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