18 Apr 4 VAT mistakes to avoid
If your annual turnover exceeds £85,000, then you must register to pay VAT. However, VAT can be somewhat confusing for many small businesses. In order to avoid any penalties down the line, it’s important to make sure you’re following the rules on VAT. Here are some mistakes to avoid:
Not filing on time
Filing your VAT return on time is crucial to avoid a fine, but that doesn’t just mean getting organised at the year-end. In order to make the process seamless, you should have the appointed member of staff responsible for VAT ensure that they are regularly monitoring whether the company has exceeded its VAT threshold and also checking in with any updates from HMRC.
Using the wrong rates
If you’re eligible to pay VAT, the flat rate scheme devised by HMRC is an easier way to determine how much you owe every quarter. While you can still charge the 20% levy on your invoices, the amount you pay to HMRC is quite a bit less, depending on your industry, allowing you to pocket the difference. However, the use of the flat rate scheme must be agreed in advance with HMCR to avoid penalties as there are restrictions on who can use it. What’s more, if you don’t pay much VAT on products you purchase, then using the flat rate could actually disadvantage you, as you would have to account for a 16.5% VAT rate.
Trying to claim back for entertaining
While you might be tempted to try and claim back any VAT you spend wining and dining everyone from clients to subcontractors, HMRC actually has strict rules in place. The VAT can only be recovered when entertaining your current employees, and flouting the restrictions could land you with a hefty penalty.
Failing to ensure compliance business-wide
VAT compliance is complex, but in order to avoid landing in hot water with HMRC, you need to ensure that you keep on top of the regulations. This is where many businesses fall down, particularly start-ups, who may have grown faster than they were prepared to manage. If you don’t have an appointed finance director who understands how VAT works for your industry, how it relates to certain transactions, who can implement any updates and ensure its compliance throughout the different departments in your company, then you could potentially make inaccuracies that could cost you.
VAT can be a minefield if you aren’t aware of the specific regulations. To avoid issues with HMRC, speak to us today for small business accounting advice.