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  • Emma Walsh

Top VAT Tips for Small Businesses

Top Value Added Tax (VAT) Tips

1. Registering for VAT at the right time

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.

2. 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% reduction 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.

3. Be aware of the impact on customers

Once you register for VAT, you will need to include VAT on the costs of any products or services you provide. 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.

4. Good Records '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.

5. 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).

6. Register for VAT online with your Tax Agent

Almost all companies file online these days. In fact, if you use online accounting software, such as at Walsh West Chartered Certified Accountants, we can connect your Government Gateway VAT account, and file your quarterly returns digitally.

7. Set up a 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.

8. Avoid 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.

If in any doubt about your VAT responsibilities, or how to calculate your tax liability, contact a qualified accountant, that is where we can help!



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