If you are running a small business VAT can be a tricky area, there are many obligations and legal requirements that you must adhere to. Here’s our top ten thoughts on the areas where you can be at risk:
- Failing to register for VAT, or registering incorrectly can lead to penalties. Seek advice from qualified advisors when setting up your business, or if your business undergoes significant change.
- Ensure you have a valid VAT invoice or receipt before reclaiming VAT on your purchases.
- And following on from number two, don’t reclaim VAT twice on the same purchase. If you pay a supplier based on their payment request and then receive a VAT invoice at a later date it’s easy to make a mistake. Remember, a payment request or proforma is not a valid tax invoice and cannot be used to reclaim VAT.
- Failure to submit VAT returns or pay VAT on time can result in penalties and interest charges being levied against you.
- If you, or your employees are claiming business mileage VAT receipts must be kept for any fuel purchased if you want to reclaim the VAT.
- Keep up-to-date with changes in VAT regulations, there can be amendments, which could catch you out – a good accountant can help here!
- There are three rates of VAT (standard, reduced and zero-rated) make sure you understand the differences. The standard rate is 20% and is applicable to most goods and services. The reduced rate is currently 5% and applies to items such as child car seats, domestic fuel or power. Zero-rate on goods or services is applied when you are exporting, but you must still account for it on an invoice as 0%. Full details can be found on the government website here.
- Keep on top of your bookkeeping and regularly reconcile your transactions. Poor record keeping can lead to difficulties in proving VAT compliance when it comes to tax audits.
- Watch out for fraud schemes – if it sounds too good to be true, it probably is! Being involved in a scheme, knowingly or unknowingly, can have legal consequences which ultimately will cost you more in the long run.
- If you or your business are involved in cross-border transactions and exporting goods and services there are strict regulations, you could be exposing your company to additional tax liabilities, ensure you fully understand the rules.
HMRC’s VAT guide can be found here. If you’d like more support in understanding the rules, regulations and procedures the team at CKLG can help, give us a call on 01223 810100 and we can support you and your business.
