Completing VAT returns can be challenging for small business owners, with substantial legislation and rules complicating matters further. It can be quite easy to make a mistake if you are not well versed in UK VAT legislation. At MJ Kane we have been keeping our clients VAT compliant for over 20 years. Over these years we have encountered some costly VAT mistakes that clients had previously been making. If you are worried about making VAT mistakes and how to avoid VAT errors keep reading.
Failing to register your business for VAT
The first VAT mistake UK Business’ make is not registering for VAT at the right time. It is mandatory to register for VAT once your total taxable turnover for the prior 12-month period exceeds £90,000. Additionally, if you expect that you will exceed in the next 30 days your total taxable turnover will exceed £90,000. Once either of these two scenarios occurs you will need to register within 30 days of the end of the month you breached the threshold. This will mean that your effective date of registration is the first day of the second month after you go over the threshold for example you breach on 7th March you will need to register before 30th April.
You may also make the mistake of not voluntarily registering for VAT if you are a business that can benefit from this and even potentially generate VAT refunds dependent on your industry.
In order to keep your business compliant with HMRC for VAT you need to keep an eye on your taxable turnover and know when you need to VAT register.
Not claiming pre-registration VAT
Another common mistake we see that could be costly is failing to reclaim VAT from expenses from before your registration.
You can reclaim VAT for goods that are still held by you that were purchased up to 4 years before your VAT registration. However, if you have used or sold the goods these cannot be reclaimed.
You can reclaim VAT on services up to 6 months prior to registration as long as the services don’t relate to goods that were disposed of prior to VAT registration.
To avoid this VAT error check what goods you still hold in stock this may be a work van, or possibly some services you used such as professional services before VAT registration.
Failure to make use of VAT schemes
A common mistake businesses make with VAT is selecting the most efficient scheme to operate on. There are multiple VAT schemes that may suit your business better depending on your circumstances. If you don’t have a lot of VAT to reclaim and your eligible for the flat rate scheme you may benefit from collecting VAT at 20% and paying at a lower rate, between 4% - 14.5%. You will also be eligible for a 1% discount for your first year of registration.
You may also make use of the cash accounting scheme if your business is eligible. This is useful for businesses that suffer from high trade receivables with slow paying customers. This means you only pay VAT when the money is received and similarly you only reclaim the VAT when expenses are paid. This scheme can help look after the cashflows of your businesses.
To avoid missing out on the available schemes you could do a comparative on your last quarter for the standard VAT vs Cash and/or Flat rate to see what is more beneficial to you.
Paying your VAT return late
Another common VAT mistake and VAT error to avoid is submitting and paying your VAT return on time. HMRC will charge interest at a rate of 2.5% plus the Bank of England rate, until payment is made in full. HMRC have also introduced late payment penalties from January 2023 which increases the longer the return remains unpaid.
In addition to paying the returns on time, they need submitted on time too. Failure to submit VAT returns on time can lead to late submission penalties which when added to the late payment penalties and interest can start to cause your business significant problems from unnecessary and avoidable costs.
Keeping track of your quarter ends and the deadlines for payment and submissions to ensure you know when to submit and when to pay. It may also be useful to check if you owe anything currently and avoid any further interest charges building up.
Failing to double checking for VAT mistakes
One of the most common VAT mistakes UK businesses make that is very easily avoided is making errors in the data. This can be the wrong VAT rates being used, claiming VAT incorrect input tax, entering the VAT boxes incorrectly and even incorrectly typing numbers. These VAT errors can cause repercussions that may cost you thousands in the future.
What's Next?
Our team at MJ Kane, aims to help keep you right. Schedule a free consultation call today to discuss your businesses circumstances and understand what you need to do if VAT is causing you issues. If you already have a grasp, you may benefit more from one of our tax advice/planning meetings.
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