As Benjamin Franklin might have said, nothing in this world is certain, except death and VAT. It is a fact of business life and yet it’s the rock on which many growing businesses founder.
VAT is a complex subject and you'll need to seek expert help. However, there are certain practices you can adopt within the business to make the burden lighter for you and your accountant.
For example, the annual accounting scheme turns the quarterly VAT return into a once-a-year task. You can use annual accounting if your estimated VAT taxable turnover during the next tax year is not more than £1.35 million.
Once you're on the scheme, you can currently continue to do so until your estimated VAT taxable turnover exceeds £1.6 million.
Even if you're on annual accounting and submit a return just once a year, this doesn’t diminish the importance of keeping your records up to date. If you leave working out the sums till the end of your financial year, it will be hard to rectify any mistakes or remember the detail. That business meeting back in December: what proportion of attendees were employees (VAT claimable) and what proportion were clients (VAT not claimable)?
It makes sense to set aside a regular time to update your records and keep everything shipshape. Make sure someone in the organisation is designated to be responsible for VAT and to receive the VAT Notes that contain regular updates from HMRC (HM Revenue & Customs).
If you don’t meet the deadlines, the consequences could be serious. First there are the penalties: you're given some leeway if you miss one payment in a year, but the fines then escalate from 2% for a second default to 10% for a fourth default.
Even worse, if you give the impression of being in a muddle on VAT, it could suggest that all is not well with your record-keeping and your business, and you may put yourself at greater risk of an investigation by HMRC.
If you know that you will be unable to make an accurate return, you should contact HMRC as soon as possible. They may, if you have a very good reason, allow you to estimate your input tax and/or output tax. Likewise, if you're having problems with bad debt that have disrupted your cash flow, keep them informed. They may be able to direct you to their Business Payment Support Service.
See the ‘problems’ section of the VAT area of HMRC’s website at www.hmrc.gov.uk/vat for more details.
It’s exciting when you first extend your business overseas, but it does introduce another layer of reporting. Accounting for VAT has been simplified to make it easier to trade within the EU. However, all businesses registered for VAT in the UK must provide HMRC with details of goods and certain services supplied to a VAT-registered customer in another EU country on what is known as an EC Sales List (ESL).
If your business makes only a low level of supplies of goods to VAT-registered customers in another EU country, you can apply to complete a simplified ESL once a year.
The right business management system can make it easier to manage your VAT.
Talk to Datel about Sage 200. It lightens the load by automating VAT invoicing, calculating VAT and producing VAT invoices, and can file VAT returns online directly to HMRC.
If you are looking to expand into new territories, it also allows you to pay or receive any invoice in any currency and, unlike smaller packages such as Sage 50, does not require separate bank accounts for each foreign currency.
For more tips on handling VAT, contact our experts.
Please note: all information is given in good faith. Please check with your accountant or business adviser on the VAT regulations that apply to your business.