VAT may seem like a straightforward tax charged on many non-essential goods and services at 5% or 20%, but the reality is far more complex.
The Government website is full of rules, exceptions and exemptions to those exceptions, making it very challenging to stay compliant.
As someone who has worked with VAT for 18 years, I’ve encountered costly errors in my time that clients could have avoided with some forethought or by seeking out expert advice. Here are the top 5 mistakes to avoid:
1. Failing to register a new business for VAT within 30 days
Try not to assume that your accountant will register you for VAT automatically. The reason is simple: a lot of the time, we often don’t see your books and records for months at a time, which means we might not realise you missed your registration deadline.
To avoid facing penalties, you should, keep track of your monthly income and seek advice when you get close to the registration threshold.
You must register for VAT if your turnover exceeds £85,000, although you can voluntarily register for VAT if it suits your business.
2. Claiming VAT without a valid invoice
You can only claim VAT with a valid VAT invoice; not doing so can result in a hefty penalty if HMRC inspects your records.
Broadly speaking, your invoice must explicitly be a VAT invoice to count: ones marked as ‘pro-forma’, for instance, will not count. It’s also essential to ensure that you make out the invoice in the business’s name rather than the director’s: otherwise, your invoice will not be valid for VAT purposes.
3. Not applying the correct rules when claiming VAT on motoring costs
Motoring costs, especially car-related ones, have different rules regarding VAT claims. You must pay special attention to these rules.
For example, you can only claim 50% of the VAT on a car lease and pay a separate charge for Road Fuel Scale Charge. Forgetting about these rules can result in costly errors if HMRC carries out an inspection.
4. Overdue purchase invoices
If purchase invoices are overdue for payment by over six months, you can claim an output tax credit on sales.
However, you must repay any input tax claimed where the invoice is overdue for payment in the purchase ledger.
5. VAT on property
VAT on the property can be a minefield — even with all the great resources you can find online for advice.
However, the sum of money involved here can be huge and often runs into tens of thousands of pounds; from self-builds to companies claiming back VAT on renovations without the correct option to tax in place, oversights in this area can result in expensive mistakes.
Therefore, it will almost always pay to get expert advice in this area, no matter how experienced you are with VAT.
You can contact us by phone or email if you need advice on VAT.