Top 10 VAT Tips for small businesses

Here are some tips to help small businesses keep on top of their VAT responsibilities – from choosing the right VAT scheme in the first place, to avoiding getting on the wrong side of HMRC.

For in-depth information on the ways to calculate your VAT liabilities, you can visit the HMRC site here. You can also read our own overview of Value Added Tax.

Top Ten Value Added Tax (VAT) Tips

1. Getting in touch

You can get in touch with HMRC’s VAT helpline on 0300 200 37000 (8am to 6pm). Alternatively, find other ways to get in touch here – including the option to access a Webchat – a useful option, from personal experience at BytesStart.

2. Registering for VAT

You should be aware of when your business needs to register for VAT. You must register if your turnover reaches the £85,000 mark in a 12 month period (2021/22 tax year), or you may decide to register voluntarily even though your turnover has not reached this threshold.

3. Choose the right VAT scheme for your business

Alongside the standard VAT scheme, you may benefit from joining the Flat Rate Scheme, which was designed to simplify VAT accounting for smaller businesses. You also benefit from a 1% on your flat rate during the first year following registration.

Other types of schemes include cash accounting (whereby you only pay back VAT to HMRC once you have been paid by your customers), and the annual accounting scheme.

4. Impact on customers

Once you register for VAT, you will need to include VAT on the costs of any products or services you provider. This will impact your pricing, and will impact any non-VAT registered customers you had, as they won’t be able to reclaim the cost of the VAT themselves. This is only a consideration if your turnover is below the current registration threshold, of course.

5. Book Keeping

You must maintain regularly updated, accurate VAT records so that you can complete your VAT returns easily. Make sure you keep all receipts, invoices, and other documents in a central place for ease of access.

6. Keep your VAT safe

Make sure you keep any VAT liabilities you collect on behalf of HMRC in a safe place – possibly in a separate bank account alongside any other taxes you may have to pay in the future (e.g. Corporation Tax if you’re a limited company). Although, given the mass-use of online accounting software, such as FreeAgent, these days, you’re unlikely to spend other people’s money.

7. VAT online

Almost all companies file online these days. In fact, if you use online accounting software, such as Sage, Xero, or FreeAgent, you can connect your Government Gateway VAT account, and file your quarterly returns from within the software package.

8. Direct Debit

Since April 2012, all payments of VAT liabilities must be made electronically. Why not set up a direct debit with HMRC, who will automatically deduct what you owe from your business account. You also get an extra 7 days grace, compared to businesses that don’t use DD.

9. VAT penalties

Try to avoid being late with your VAT returns and payments. Although there is no ‘surcharge’ for an initial late submission, the percentage charged on any VAT liabilities you owe increases according to the number of times you have paid late. It simply isn’t worth the hassle. Find out more about VAT penalties here.

10. If in doubt

If in any doubt about your VAT responsibilities, or how to calculate your tax liability, your first port of call should be an accountant.

Last updated: 22nd March, 2022

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