VAT is a tax charged at 20% on goods and services deemed to be non-essential. Pretty simple right? A quick look at the list of VAT Notices on www.gov.uk will give you some indication that it is nowhere nearly that straight forward. The VAT Notices are full of rules with exceptions, exemptions and exemptions to exceptions! After 18 years of working on VAT, there are still issues that crop up where I have to dig deep into the rules for clarification. Almost all of the costly errors I’ve encountered over the years could have been avoided with some forethought or by asking for a little bit of advice.
New businesses not registering for VAT within 30 Days
Don’t presume your accountant will be able to pick up when you initially need to register – we often don’t see the books and records until a few months later, by which time you could face some nasty penalties. Keep a simple table or spreadsheet tracking your monthly income and if you do start getting close to the Registration Threshold you can get some advice and have a plan in place for your responsibilities and cashflow.
Claiming VAT without a valid VAT invoice
HMRC are very clear that VAT cannot be claimed if an Invoice is marked as ‘Pro-Forma’ or ‘This is not a VAT Invoice’. It seems quite obvious, but it is common for businesses to claim these on the VAT Return, and it can be very costly if the records get inspected. In recent years, more and more people are buying goods from the internet. It could be costing you money if you don’t obtain a VAT Invoice. Companies like EBay and Amazon may send an email to confirm the goods you bought which can be used as evidence for tax purposes, but not to claim back VAT. It is equally important to make sure an invoice is made out in the business name. If it’s in the name of the Director of the business, it cannot be claimed. Mobile phones are a common area where businesses make this error.
Not applying the correct rules when claiming VAT on motoring costs
Motoring costs, in particular those relating to cars have rules of their own quite different to the usual input VAT claims. It is always worth taking particular care here. Examples of these rules include*; Only 50% of the VAT can be reclaimed on a car lease, no VAT can be reclaimed on a car purchase, if fuel costs are claimed then a separate charge must be paid called the Road Fuel Scale Charge. HMRC set the amount of the Road Fuel Scale Charge. You will need to know the CO2 emissions of your vehicle. This can quite easily be missed when calculating your VAT returns and can be a costly omission if HMRC carry out a visit and assess the unpaid VAT for 4 years.
*There are exceptions to these rules, so please consider your own circumstances when looking into this. The main examples for these exceptions are taxi drivers and driving instructors.
Purchase invoices overdue for payment by more than 6 months
Most businesses are aware of bad debt relief claims whereby they can claim an output tax credit on sales which are more than 6 months. However, to balance the books, there is also a requirement for a customer to repay any input tax claimed where the invoice is more than six months overdue for payment in the purchase ledger.
VAT on property
Although there are a lot of great resources online to give you advice, VAT on property really can be a minefield. Often the sums of money involved can run into tens of thousands of pounds. This is one of the areas where I would say that it is always worth paying for expert advice, however experienced you are with standard VAT. Whether it be a self build where owners haven’t considered what HMRC class as a residence (not as clear cut as you might think) or have failed to check the deadlines to submit a claim, a small business who has sold some land which puts them into partial exemption, a company who has claimed back VAT on renovations but failed to get the correct Option to Tax in place, the list could go on and on of very costly oversights.
If you would like any VAT advice, please give us a call on 0161 653 2274 or get in touch here.