Top Tips For VAT.

What’s the one sector of tax compliance that baffles businesses more than any other?

Well, we’d have to say that it’s compliance with VAT. The rules are now more complex and more stringently enforced than ever. This is in the main due to the fact that HMRC has increased the level of intensity of their investigations because of the increased financial pressures it finds itself under.

That’s why it’s now more important than ever for businesses to use the services of an accountant. 

Good accountants should be able to give clients peace of mind, help them accurately interpret the complex regulations, and take the best advantage of the available reliefs.  This month we thought we’d share with you a little bit of background information of the ‘taxing’ subject of VAT as well as a few top tips for VAT. We hope you’ll find the information useful and informative.

The Background

What Is the VAT threshold?

All sorts of different countries have different VAT thresholds, but if you’re trading in the UK the VAT registration threshold is currently £77,000 of taxable sales. What this means is that if you have sales that would be subject to zero or standard VAT, you need to the check the level of sales in a 12 month period to see if it is under or over the VAT threshold.

What about businesses that have a variety of sales?

If your business has a mixture of sales, some of which might be exempt from VAT and some that are subject to VAT, then you can calculate whether you’ve reached the threshold by measuring the amount of sales that are subject to VAT. Zero and standard rated goods or services are considered taxable supplies, however, exempt goods or services are non-taxable supplies.

Can you split businesses for VAT purposes?

If your business is genuinely involved in a variety of trades, then you could incorporate the separate businesses, for example you might run a newsagents and a consultancy business. However, it’s important to remember that businesses shouldn’t artificially separate trades in order to avoid being over the VAT threshold. If HMRC decide that you have done this, they can decide that the entire business is a single taxable entity and therefore must be registered for VAT.

Top VAT Tips:

  • Review your business to see if it is more suitable for cash or accrual VAT accounting.
  • If your business turns over under £150,000 revenue, then consider whether the Flat Rate VAT scheme might be best for you.
  • If you are at the cusp of being close the VAT threshold, then make sure you check your figures every month, as HMRC can look at any 12 month period, not just your usual tax year.
  • If your business is struggling and possibly shrinking, then review whether it is still appropriate to be VAT registered. If your business involves trading with the general public your prices may be more attractive if you don’t have to charge VAT.
  • Unless you have a very low number of transactions, make sure you have a good system for calculating VAT.  Basic accounting systems like Sage One or QuickBooks are highly recommended.

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