Common VAT problems
Recognising the areas of VAT that can catch other businesses out is a good way to avoid them yourself. Here are some key issues to be aware of:
• Chasing details can lead to late VAT returns and result in fines and more frequent VAT inspections. Make sure you collect all the details you need and record them straight away
• Accuracy of dates
• You’ll need to know the ‘date of supply’ for each invoice – which isn’t always the date of sale. Changing to HMRC’s Cash Accounting Scheme could make record keeping easier
• VAT applied to personal supplies
There are special rules for personal or employee supplies, including things like company cars, fuel, and also business entertainment.
VAT when trading internationally
There are different VAT rules that need to be applied depending on whether you are trading with businesses inside the EU or elsewhere.
Out of date records
You can avoid high accountancy fees by keeping accurate and organised records making it quicker and easier to submit your VAT returns.
Incomplete VAT invoices
You must ensure you issue proper VAT invoices to your customers. You must also keep VAT invoices for all your purchases.
If the goods or services you supply are exempt from VAT, you cannot usually reclaim the VAT you pay on purchases related to them.
Avoiding common VAT mistakes
It’s not realistic to expect VAT to be entirely straightforward but there are a few things you can do to make submitting VAT as simple as possible.
• Choose a VAT scheme: Check whether any of HMRC’s accounting schemes will make your life easier and suit your business better. There are several schemes that help simplify VAT if your turnover is less than £1.35 million.
• Set up a VAT account: Take a disciplined approach to keeping on top of VAT. It’s a good idea to set aside a regular time each week – or each day – to update your accounting records.
• Assign a person to manage VAT: Whether you plan to manage VAT yourself or delegate the work, make it clear who is responsible to avoid confusion and ensure consistency in your record keeping.
• Choose the right software: Make it easier to manage by choosing accounting software that automates VAT invoicing and filing online VAT returns straight to HMRC.
VAT can be complicated to understand but by being aware of the areas that can cause problems and following simple steps to avoid them you can save time to focus on driving other parts of your business.