VAT Tips

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.