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 at the due date. You will not be charged the first time this happens but you a warning will be issued. If it occurs again within the following 12 months, an assessment will be made to determine a surcharge of up to 15%.
2. Charge the appropriate VAT amount
There are different types of tax, consequently you must make sure that you apply the right amount. Charging 17.5 percent, 5 percent, 0 percent or exempt can make a noticeable difference to your profit margins. If you are unsure as to what VAT to charge, seek expert advice from a VAT consultant.
3. Pay VAT online
Paying VAT online method that the due date for the return and payment to arrive at HMRC can be extended by an additional seven calendar days.
4. Take advantage of the Annual Accounting Scheme
VAT registered businesses assistance from this scheme as it enables them to pay VAT in nine monthly installments and then pay a balancing payment, every year. There are 1 million businesses eligible for this but your annual turnover, excluding VAT must be less than £1.35 million.
The main advantages are that you do not receive extortionate VAT bills when it is inconvenient because your payments are staggered throughout the year. This aids your cash planning, less time is spent filling out VAT returns as you only have to fill our one return a year as opposed to 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 which 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 customers who pay late. However, this also method that you cannot reclaim VAT until you have paid your suppliers.
6. Flat rate scheme, simplified accounting
You can calculate your VAT payment as a flat rate percentage of your turnover by using this scheme. The percentages are calculated according to which sector you trade in. By using this scheme, you are not able to reclaim the VAT which has been paid as this is taken into account and additional to the flat rate percentage. The flat rate scheme saves you time and possibly money as you don’t need to explain the VAT charged on every single sale and buy made.
7. Get any decisions in writing
Any decisions made by HMRC must be confirmed in writing, this acts as an insurance policy. If anything goes wrong, you can produce this as proof of what was said.
8. Ask for a VAT invoice
When making a buy, always ask for a VAT invoice as this can then be used to claim it back.
9. Don’t make unnecessary claims
Claiming back VAT on the buy of vehicles, business entertainment or non-business expenses is not permitted. You may be awarded a penalty and interest if you try to do so.
10. Claim back VAT quickly
Try and get into the habit of claiming all expenses as soon as possible as this will help to ease your cash flow.