Running your own business can be incredibly rewarding, offering a greater degree of freedom to explore your passion. However, it’s fair to say that the majority of business owners face a steep learning curve, particularly when it comes to financial aspects of the company. The way in which a business approaches taxes can be especially complicated, none more so than VAT.
VAT or Value added tax can be particularly complex, with many different moving parts to consider. Therefore, it can be easy for business owners to make mistakes with their VAT returns, and these can be costly.
With this in mind, how can businesses protect themselves from expensive VAT mistakes?
What is VAT?
VAT is a consumption tax, applied to nearly all goods and services and paid for by customers. Whilst VAT is footed by the customer, it is collected by businesses and then delivered to HMRC.
What is important to note is that not all businesses are required to register for VAT. Currently the threshold is set at £90,000, meaning any businesses that takes in more than this amount must register for VAT. Those companies taking in less than this amount are not legally obliged to register for VAT but can do so if they want to take advantage of specific benefits.
From the perspective of a business, what potential mistakes should be avoided when it comes to VAT?
Regulations
VAT regulations can be complex and difficult to understand, not to mention subject to continual change. Therefore, one of the more common pitfalls that businesses make with VAT is misunderstanding the rules. Whether it’s the rules governing VAT on businesses entertainment or the rules around company vehicles, it’s easy to make mistakes. However, lapses such as these can lead to errors and potential penalties, costing valuable time and money.
Fortunately, there are ways to combat this problem. Any business owners who are uncertain of the proper VAT regulations can access countless online resources or get help from professionals, with experience in this field.
Deadlines
This may seem like a relatively simple issue but many businesses will incur costs just by missing their VAT deadline. Obviously, a late submission could lead to penalties but this isn’t the only detrimental effect. Last minute changes to VAT affects the entire business, leading to issues with cashflow and suppliers.
Of course, the solution to combat the issue of potential missed deadlines is to simply plan ahead. Set up reminders way ahead of time, to ensure that your VAT submission is made with time to spare.
Inaccuracy
Inaccuracy in any aspect of business can be a problem but when dealing with taxes, it can be particularly problematic. Mistakes on a tax returns, including VAT, can lead to penalties or even worst, an investigation from HMRC. Therefore, ensuring that all of the relevant data is accurate, is extremely important.
Mistake can be made due to a number of reasons – poor record keeping, a lack of good communication or just simple human error. There are ways in which to ensure that errors are kept to a minimum, when completing VAT. These can include changes to the company’s structure and overall culture. For example, a change to policy when it comes to record keeping, ensuring that all information is collated and stored safely, throughout the working year.
Strategy
VAT registration can have a huge impact on a business, especially those companies that are newer and smaller. The VAT itself is added to the cost of goods and services, which can lead to lower sales and a decrease in profit. Not to mention the added workload of keeping on top of VAT and completing the relevant tax returns each year.
With this in mind, businesses must create a VAT financing strategy, ensuring that the effect of this tax doesn’t damage the business. One of the ways in which you can protect against the negative effects of this tax is with a short-term VAT loan. This acts as a buffer during the transition period, allowing the business to grow in to its new role.
As we have established, VAT can be incredibly complex, even for the most experienced of business owners. Thankfully, there is help available. The expert team at Taxation Investigation offer comprehensive solutions for those looking for guidance with their business taxes.
