Welcome to the latest instalment of our Tax Tips Series, where we delve into the world of (Value Added Tax) VAT Tips. Whether you’re a business owner or an individual navigating VAT intricacies, these expert VAT tips are designed to enhance your understanding and optimize your financial strategies. Let’s dive into our carefully curated VAT insights that can help you stay ahead of the game.

Photo by Nataliya Vaitkevich

1. Strategic VAT Registration

The most important VAT tip is to know when you have to register. Missing the compulsory registration date could be extremely costly. Especially if you can’t go back and ask your customers for the VAT that should have been charged. A proactive approach to VAT registration can save you time and streamline your financial operations. Maintain a record of your total sales over a rolling 12-month period, and when you foresee your sales exceeding £85,000, consider applying for VAT registration. Keep in mind that the registration process takes several months, so plan ahead to avoid any disruptions.

2. Reclaiming VAT on Past Purchases

VAT registration doesn’t mean you miss out on past opportunities. Even after registering for VAT, you can reclaim VAT on goods purchased before registration if they’re tied to sales made post-registration and are still in your possession at the registration date. Items like resale stock, computers, and office equipment often fall into this category.

3. Reclaiming VAT on Post-Deregistration Invoices

If you’ve deregistered for VAT but still receive suppliers’ invoices pertaining to purchases made before deregistration, you can reclaim the VAT on these invoices. This practice ensures you’re not missing out on valuable VAT reclaims.

4. Efficient VAT Return Management

Embrace technology to optimize your VAT return process. Consider completing your VAT returns using online accounting software and making VAT payments via direct debit. This approach grants you a few extra days to settle your VAT liabilities, contributing to smoother cash flow management.

5. Reclaiming VAT on Bad Debts

Financial setbacks are inevitable, but VAT reclaims can help alleviate some of the burden. You can reclaim VAT on bad debts that have been outstanding for more than six months. This practice can provide a valuable cushion during challenging times.

6. Unlocking the Benefits of the Flat Rate Scheme

Businesses with an annual turnover below £150,000 can leverage the advantages of the Flat Rate scheme for small businesses. This scheme simplifies VAT return completion and, in some cases, reduces the VAT payable. Importantly, it doesn’t impact the VAT charged to your customers, ensuring a seamless experience.

7. Enhancing Cash Flow with VAT Cash Accounting

For businesses with an annual turnover below £1,350,000, the VAT cash accounting scheme offers an effective cash flow strategy. Under this scheme, you only pay VAT when you receive payment from customers, rather than when issuing sales invoices. This approach can have a significant positive impact on your cash flow dynamics.

8. Voluntarily Registering for VAT

Although you don’t have to register for VAT until sales in any 12 month period exceed £85,000, it could be worth registering earlier. That’s because customers who are VAT registered don’t mind being charged VAT because they can claim it back. So if most of your customers are VAT registered, consider voluntarily registering so that you can claim back VAT on your costs.

9. Reduce Prices After Registering for VAT

For your customers who are not registered for VAT, it is an added cost. So when you add VAT to your usual prices, it’s a 20% increase to their cost. However, you will be saving some money by claiming back VAT on your costs, so consider reducing the sales price to keep your customers.

10. Include VAT Before You Can Charge VAT

There may be a period of time between the date you need to start charging VAT and the date you receive your VAT number. During this period, you can’t show that VAT has been charged because you’re not officially registered yet. However, you can increase your prices by 20% to allow for VAT. You can also state that your VAT registration is pending. Once you have received your VAT number, you can then show that VAT has been charged. This will save you from going back to the customer and asking for the extra 20% for VAT.

By implementing these VAT tips into your financial strategy, you can navigate the complexities of VAT more effectively and make informed decisions that benefit your bottom line. As always, it’s recommended to consult with your tax advisor to tailor these insights to your specific circumstances. Stay tuned for our next Tax Tips Series instalment, where we explore invaluable insights into optimizing your employer tax strategy.

If you are VAT registered you may be wondering: What is MTD VAT? When do I have to do Making Tax Digital VAT Returns? And how do I do MTD VAT Returns? MTD stands for Making Tax Digital and we’ll explain all you need to know about it below.

What is MTD?

Making Tax Digital is HMRC’s initiative to get every business and business owner (including landlords) keeping digital records and submitting all tax returns online. The digital records need to be linked to the numbers submitted on the return, so essentially you have to use online accounting software. It applied to MTD VAT returns first but plans are in place to apply it to income tax (2024) and corporation tax (2026). Eventually everyone that needs to submit a tax return will be submitting quarterly MTD tax returns and a finalised one for the year.


MTD VAT Returns are already required for all VAT registered businesses with annual sales of over £85,000. From 1st April 2022 MTD VAT will start to apply to all VAT registered businesses, regardless of their annual sales.

When do I have to do MTD VAT returns?

As mentioned above, MTD VAT returns already apply if annual sales are over £85,000. Also, it already applies if you have voluntarily signed up for it. For everyone else it, there’s a staggered start, depending on your VAT period and frequency. In a nutshell it applies from the VAT period starting on or after 1st April 2022.

So here is your first MTD VAT return if you submit a VAT return:

When do I have to sign up for MTD VAT?

When to actually sign up for MTD isn’t as straight forward as you would think! You need to wait until your last non-MTD return has been submitted and paid. If that’s by direct debit the payments could be as late as the 13th. So, if you do quarterly returns, sign up no sooner than one month and 13 days after the last quarter end. For existing direct debits to continue working, you need to sign up at least 7 days before the first MTD VAT due date, so that’s 1 month after the first quarter end. So there’s about a 10 week window in which you need to sign up.

How to do MTD Returns

You could spend hours fiddling around with spreadsheets and formulas and ‘bridging software’ to submit your totals to HMRC. That’s after spending hours actually completing the spreadsheets. Or you could use free online accounting software like Pandle. We can get you Pandle Pro with automatic bank feeds for just £2.50 per month. Also, Xero Accounting is easy to use and available from as little as £9 per month (through us). You’ll save so much time using online accounting software, that those prices will be worth it.

We’ve specialised in online accounting software since we started business in 2013. It saves our clients time, it save us time, and so it makes our accountancy fees cheaper (from £20pcm). If you’d like advice on which software to choose and how to use it, please get in touch. We can also sign you up for MTD and do your VAT Returns for you (from an extra £10pcm).


Should you apply for voluntary VAT registration ?


If your taxable turnover is below £85,000 you don’t have to register for VAT. However, you may be eligible to apply for ‘voluntary VAT registration’ and one or more VAT schemes.

There can be advantages in registering for VAT such as…

However, you do need to weigh up the benefits against the hassle factor of completing VAT returns. Plus you’ll need to do a little cashflow planning to pay the VAT due every quarter. If you supply the general public you will probably not want to register for VAT as this simply puts your prices up by the rate of VAT.


VAT Schemes


There are various VAT schemes, mainly for small businesses…


When you must register for VAT


When your sales for the past 12 months exceed £85,000, you have to register for VAT within 30 days of going over. Not within 30 days of noticing! So, at the end of every month, you need to work out your total sales for the 12 months leading up to the end of that month. If it’s over £85,000, you have to register for VAT by the end of the next month and start adding VAT to your sales from then on. You’ll also be able to claim back VAT on your costs, so you may be able to lower your sales price.


How We Can Help You


We can assist you with Voluntary VAT Registration by…

In the 2016 Autumn Statement, it was proposed that A new 16.5% VAT flat rate for businesses with limited costs will take effect from 1 April 2017.

The VAT Flat Rate Scheme (FRS) is a simplified accounting scheme for small businesses. Currently businesses determine which flat rate percentage to use by reference to their trade sector. From 1 April 2017, FRS businesses must also determine whether they meet the definition of a limited cost trader, which will be included in new legislation.

Businesses using the scheme, or thinking of joining the scheme, will need to decide whether they are a limited cost trader. For some businesses – for example, those who purchase no goods, or who make significant purchases of goods – this will be obvious. Other businesses will need to complete a simple test, using information they already hold, to work out whether they should use the new 16.5% rate.

Businesses using the FRS will be expected to ensure that, for each accounting period, they use the appropriate flat rate percentage.

A limited cost trader will be defined as one whose VAT inclusive expenditure on goods is either:

– less than 2% of their VAT inclusive turnover in a prescribed accounting period;
– greater than 2% of their VAT inclusive turnover but less than £1000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1000).

Goods, for the purposes of this measure, must be used exclusively for the purpose of the business but exclude the following items:

– capital expenditure;
– food or drink for consumption by the flat rate business or its employees;
– vehicles, vehicle parts and fuel (except where the business is one that carries out transport services – for example a taxi business – and uses its own or a leased vehicle to carry out those services).

These exclusions are part of the test to prevent traders buying either low value everyday items or one off purchases in order to inflate their costs beyond 2%.

VAT Calculator

Do you need a quick VAT calculator to get from gross to net or from net to gross? Use our VAT calculator below.

Are you struggling to calculate VAT from gross or VAT from net amounts? That’s exactly what our VAT calculator can do.

What our VAT calculator doesn’t do is calculate the net or gross from the VAT amount. But here’s how you do it at 20%: multiply the VAT by 5 to get the net amount, or by 6 to get the gross amount.

If you need help with VAT returns, our Quarterly package from £40pcm includes VAT returns, Management Accounts, Annual Accounts, Tax Returns, Advice and regular reviews of your online accounting. See all of our fixed monthly fees or just ask us for a quote using our quick enquiry form.

We also have a Flat Rate VAT Calculator, which calculates whether you could save VAT under the Flat Rate VAT Scheme.

The VAT Calculator

Our VAT Calculator Guide for Beginners

Most purchases carry a VAT charge. Value Added Tax (VAT) is levied on most business transactions and on many goods and some services.

There are three rates of VAT in the UK:

You will probably have to register for VAT if any of the following apply…

There are penalties for failing to register on time.

Goods and services liable to VAT are known as ‘taxable supplies’. Once registered you must charge VAT on all taxable supplies.

VAT doesn’t apply to everything. Supplies which are specifically not subject to VAT are referred to as ‘exempt’ and include: insurance, financial services, postal services, health and education, although there are exceptions in every category.

The amount of VAT payable to Revenue and Customs is the difference between your output tax on your sales and input tax on your purchases. If input tax is greater than output tax, a refund may be owed. The VAT due is normally payable each quarter following the submission of a VAT return, although under certain schemes the payments can be made monthly.

Should you register?

If your taxable turnover is below £85,000 you don’t have to register but you may be eligible to apply for ‘voluntary registration’.

There can be advantages in registering such as…

This does however have to be weighed up against the hassle factor of completing VAT returns, and paying the VAT due every quarter. If you supply the general public you will probably not want to register as this simply puts your prices up by the rate of VAT.

VAT Schemes

There are various VAT schemes, mainly for small businesses…

How We Can Help You

We can assist you with…

If you need help with VAT returns, our Quarterly package from £40pcm includes VAT Returns, Management Accounts, Annual Accounts, Tax Returns, Advice and regular reviews of your online accounting. See all of our fixed monthly fees or just ask us for a quote using our quick enquiry form.


Flat Rate VAT Scheme

The flat rate VAT scheme is designed to make it simpler and quicker for small businesses to complete their VAT return.

This is because VAT payable to HMRC is calculated as a particular percentage of the gross turnover of the business and not as the difference between VAT on individual sales and purchases. In particular there is no need to record the VAT incurred on most purchases and determine whether it is reclaimable or not, so there is less chance of error. The amount of VAT charged to customers remains the same whether using the VAT flat rate scheme or not.

However, some business will pay less VAT by using the flat rate scheme and some may pay more by using it as the percentages used are based on the average VAT payable by particular trade sectors. It is important to calculate the financial effect before applying to use the flat rate VAT scheme. See our Flat Rate VAT Calculator below.

If you need help with VAT returns, our Quarterly package from £40pcm includes VAT returns, Management Accounts, Annual Accounts, Tax Returns, Advice and regular reviews of your online accounting. See all of our fixed monthly fees or just ask us for a quote using our quick enquiry form.


The VAT Flat Rate Scheme Calculation

These are the steps in the calculation…

So if for example your gross turnover comes to £20,000 and the percentage for the sector is 10%, the VAT due is £2000. If what you purchased was a capital asset for £3833 including £500 of VAT , then the VAT payment due would be £1500.

To qualify to join the flat rate VAT scheme…

A business must apply to join the flat rate VAT scheme and can leave whenever it chooses by informing HMRC in writing.

The Business Sector VAT Flat Rates

Different business sectors must use their own flat rate VAT.

A business must choose its sector on the grounds that it most closely describes its main trading activities. If the trading mix changes, so say the majority of the turnover comes from supplying restaurant meals rather than alcoholic drinks the trade sector to be used will change from ‘Pubs’ (6.5%) to ‘Catering Services’ (12.5%). The change in sector should be made from the start of the VAT period that contains the anniversary of joining the flat rate VAT scheme.

It is advisable to set out in writing why you made the selection of trade sector.

A lot of the rates changed following the VAT increase to 20% on 4th Jan 2011. Here are the rates from 4 Jan 2011.

1% Reduction in First Year of VAT Registration

In your first year of VAT registration there is a 1% reduction in the flat rate VAT that is applied to your turnover. The reduction is for for the 12 months following the date of VAT registration and not the date of joining the flat rate scheme. There is no entitlement to the 1% reduction if you register for VAT 12 months after you were required to register.

A Trap in the Flat Rate Scheme

The flat rate must be applied to all business income, including rents and sales of assets where VAT was not reclaimed, such as cars or property, but not interest received from business bank accounts. This means you effectively pay VAT on the gross receipts of sales on which you have not collected any VAT.

If you are a sole-trader the flat rate should be applied to any letting income you receive in your sole name, as lettings are regarded as a business for VAT purposes. Lettings undertaken as a partnership, perhaps jointly with your spouse, are not counted as part of your sole-trader business income. When you sell a let property the flat rate should be applied to the total proceeds. You can withdraw from the flat rate scheme before you sell a high value item such as a property, but you have to stay out of the scheme for at least 12 months.

How We Can Help You

We can advise you on the suitability of the flat rate scheme for your business, applying to join the scheme and assistance with completion of your VAT returns.

Flat Rate VAT Scheme Calculator

Click here if you can’t see it below.

If you need help with VAT returns, our Quarterly package from £40pcm includes VAT returns, Management Accounts, Annual Accounts, Tax Returns, Advice and regular reviews of your online accounting. See all of our fixed monthly fees or just ask us for a quote using our quick enquiry form.



If your company makes a deliberate VAT return error, which results in less VAT being paid over to HMRC than is correctly due, you as the director of that company can be issued personally with a penalty. This very rarely happens, but the VATman does have the power to impose such penalties where he can show the underpaid VAT was due to the dishonest conduct of one or more of the directors.

Two recent cases illustrate the types of situations where a personal penalty can be imposed:

Mr Brookes is the sole director of a building company. A VAT inspection found suppliers’ invoices to support VAT inputs were missing. Brookes obtained ‘copy’ invoices from the main suppliers, but those ‘copies’ were found to be very poor forgeries. Brookes was served with a personal penalty of £43,753 which was 60% of the over claimed VAT.

Mr & Mrs Walker failed to submit eight successive VAT returns for their company. The VAT office issued estimated VAT return assessments to the company which were less than the VAT eventually found to be due, and the Walkers did not challenge those estimated assessments. The Walkers were served with personal penalties totalling £194,214.

If you are getting in a mess and are worried about making VAT return errors, ask us to help you out before things get really serious! Our Quarterly package from £40pm, and Monthly bookkeeping package from £70pm  include preparing your VAT returns and more. Use the buttons below for more details.

Newsletter issue – August 2013. Sign up now and receive 2 free tax saving guides.