Small businesses, in particular, find this regular requirement a time-consuming task when every transaction for the last three months needs to be reviewed. Just the administration alone relating to VAT returns almost needs its own SOP manual.
Everything needs to be assessed for VAT liability, all your VAT calculations need to be checked, and your VAT submission must be completed accurately.
So far so stressful, but the worry doesn’t end there.
It is vital that you don’t fall foul of the complex and sometimes frustratingly obscure VAT laws. Yet again you might think you’ve got all bases covered, but the regulations keep changing, and you need to stay abreast of the implications for your business.
After you have submitted your return, HMRC gives you just over a month to make the payment. If you have made a mistake on your return or missed the submission or payment deadlines even by a day or so, you may well be required to pay a penalty. HMRC may even decide to send in the VAT inspectors to conduct a rigorous investigation of all of your records. More time is lost and more time spent away from your core business activities.
We have an experienced and professional team of tax experts who are well versed in the convolutions of VAT legislation and requirements and who will help you avoid making expensive errors.
Originally the VAT scheme was reasonably easy to understand. If you supplied VAT liable products or services, all you had to do was add 20% onto the customer’s bill, take off the VAT you paid to the supplier and give HMRC the difference.
However, along the way, HMRC has made several changes to how VAT is operated and have brought in different VAT schemes which benefit different kinds of small businesses with the aim of helping with cash flow and reducing the administration required.
VAT Standard or ‘normal’ Accounting scheme
At the moment under the standard VAT scheme, on a quarterly basis you have to pay HMRC the VAT element on any of the invoices you have sent out, whether they have been paid or not. Under this scheme, you can reclaim VAT on your own purchases, even if you haven’t yet paid your supplier. If you don’t receive payment of an invoice and it becomes a Bad Debit, you can claim relief but not until after six months.
VAT Cash Accounting scheme
The VAT cash accounting scheme is popular with small businesses who have constant problems with cash flow because you only need to pay the VAT when you have been paid yourself. This is a boon for businesses whose clients are late payers. Also, if you never receive a client’s payment and it becomes a bad debt, you don’t have to pay the VAT to HMRC. On the other hand, you might have problems if you have bought a large amount of stock on credit terms, and then find you cannot reclaim the VAT.
VAT Flat Rate scheme
If you estimate your turnover at £150,000 or less, excluding VAT, for the next twelve months, you are eligible to join this scheme. Under this scheme, you cannot reclaim VAT on any purchases you have made, with the exception of capital expenditure over £2000. This means you don’t need to keep a record of the VAT element of all your purchases. You will pay a different percentage of VAT depending on the type of business.
Getting you registered
Most businesses do need to register for VAT, but some don’t. We will discover whether you need to register and go through the VAT registration process with you or look at whether deregistration might be the best option. We will recommend the best approach for your business interests.
The best VAT Scheme for you
All of HMRC’s VAT schemes have their own benefits and drawbacks. Why not take advantage of our in-depth knowledge and expertise and discuss which scheme would be the best and most cost-effective for your business?
We will look at your business in detail and assess which of the VAT schemes would suit your needs. We will recommend the best options in straightforward language and guarantee not to confuse you with accountancy jargon.
We can help with the management of your quarterly VAT returns making sure they are submitted with 100% accurate information and within the submission deadline, all of which will save your valuable time and avoid any penalties. This includes evaluating VAT elements on your sales and purchases, checking amounts of VAT you owe and how much you can reclaim.
Switching to Digital accounting
In April 2019 HMRC introduced an initiative called ‘Making Tax Digital’ aimed at ending the need to send in a tax return in the standard way. This has brought additional pressure to many businesses
Our professional tax experts are right up to date with all the latest Digital solutions and software and can help to ensure you are filing your VAT information correctly.