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VAT tips for small businesses

July 9, 2012

In this article, we look at some simple VAT tips which could save your business time and money.

These ideas have been compiled by the Bytestart team, based on our experiences of running small business sites over the past decade. Of course, you should talk to an accountant if you have any specific queries related to VAT or tax in general.

Pay your VAT liabilities on time

This may seem like common sense, but VAT penalties can be severe. There is no penalty for missing a VAT deadline for the first time, however the percentage surcharged to your account will increase with each subsequent default. Find out more about VAT penalties here.

Now that all VAT liabilities must be laid electronically, why not set up a direct debit with HMRC to ensure that your quarterly payment is taken automatically from your business bank account?

Charge the correct amount of VAT

Are you charging the correct amount of VAT? There are four rates – exempt, zero, 5% and 20%, with 20% being the ‘standard’ rate which applies to most goods and services in the UK.

Do your VAT online

Since 1st April 2012, almost all businesses must now submit their quarterly VAT returns online.

Choose the right VAT scheme

HMRC offers several types of VAT scheme which may benefit your business more than the standard VAT scheme. For example, the Cash Accounting VAT scheme allows you to only account for VAT once you have been paid for any invoices you issues – providing cash flow benefits.

The Flat Rate VAT scheme has been designed to make VAT accounting easier by allowing businesses to apply a flat percentage to turnover to calculate how much VAT needs to be repaid to HMRC. The percentage varies according to the industry you are in, but you may benefit particularly if you don’t make a lot of purchases via your business. You also qualify for a 1% reduction in your flat rate percentage during your first year on the scheme.

Add your VAT information to invoices

Once you are registered for VAT, you must print your VAT number on all invoices, and apply the correct rate of VAT to all items.

Keep accurate VAT records

Be careful to keep copies of all your invoices, VAT calculations, receipts and expenses to ensure that you complete your quarterly VAT return accurately, and also so you can produce the correct information if you are ever the subject of a VAT enquiry.