1. Pay VAT on time
Avoid penalties by paying VAT on time. If your VAT return is late, HMRC will make you pay a percentage of the unpaid VAT on the due date. You won’t be charged the first time this happens, but you will be issued a warning. If it happens again within the next 12 months, an evaluation will be made to determine an overload of up to 15%.
2. Charge the corresponding VAT amount
There are different types of taxes, so make sure you apply the correct amount. Charging 17.5 percent, 5 percent, 0 percent, or waived can make a noticeable difference to your profit margins. If you are not sure what VAT to charge, seek the expert advice of a VAT adviser.
3. Pay VAT online
Paying VAT online means that the due date for the return and payment to reach HMRC can be extended by an additional seven calendar days.
4. Take advantage of the Annual Accounting Plan
VAT registered businesses benefit from this scheme as it allows them to pay VAT in nine monthly installments and then pay a compensation payment each year. There are 1 million businesses eligible for this, but their annual turnover, excluding VAT, must be less than £1.35m.
The main advantages are that you don’t get exorbitant VAT bills when it’s inconvenient because your payments are spread out over the year. This helps your cash planning, less time is spent completing VAT returns as you only have to complete one return per year instead of the usual four.
5. Cash Accounting Schemes
If your annual turnover is less than £660,000, you are eligible for the cash accounting scheme whereby you only pay VAT on invoices that have already been paid. You will not be able to use this scheme once your turnover reaches £825,000. The main advantage of using this cash accounting scheme is that it helps cash flow, especially if you have late paying customers. However, this also means that you cannot reclaim VAT until you have paid your suppliers.
6. Flat rate regime, simplified accounting
You can calculate your VAT payment as a flat rate percentage of your turnover using this scheme. The percentages are calculated according to the sector in which it operates. By using this scheme, you cannot reclaim the VAT that has been paid as it is taken into account and added to the flat rate percentage. The flat fee scheme saves you time and possibly money as you do not need to account for the VAT charged on every sale and purchase made.
7. Get any decision in writing
Any decision made by HMRC must be confirmed in writing, this acts like an insurance policy. If something goes wrong, you can present this as proof of what was said.
8. Request a VAT invoice
When making a purchase, always request a VAT invoice as this can be used to reclaim VAT.
9. Do not make unnecessary claims
VAT is not allowed to be claimed on the purchase of vehicles, business entertainment or non-business expenses. You may be awarded a penalty and interest if you attempt to do so.
10. Claim VAT quickly
Try to get in the habit of claiming all expenses as soon as possible, as this will help ease your cash flow.