VAT has always been a complex tax with many different VAT schemes available to choose from. This has become even more complex with BREXIT and our exit from the E.U.
The best bit of advice we can offer is speak to an expert which could be your accountant or a VAT specialist if you are unsure. If you don’t and you make a big mistake it may end up costing you a lot of money in penalties and interest further down the line.
Below we have covered a few frequently asked questions:
If I mess up my VAT return I’ll be fined!
This is not always the case as it will depend upon circumstances and the nature of the mistake itself.
It is possible that errors with a value of up to £10,000 can be adjusted in your next tax return as can amounts between £10,000 and £50,000 provided that amount does not exceed limits on your tax returns. Normally for amounts over £10,000 you would have to complete an error form and notify HMRC separately.
However, failure to notify the HRMC of any mistake can create problems further down the line. HRMC, can still assess you at some point in the future.
It’s possible to recover VAT on my business entertainment expenses.
The HMRC only allows tax relief and the claiming of VAT on the cost of entertaining your employees, who have to be on your payroll and being paid a salary.
You can’t claim tax relief or VAT when you’re entertaining others even if you call it ‘business entertaining’
I only need to pay VAT when an invoice is issued.
There are different time points for paying VAT, the invoice date is just one of them. VAT can also be due once goods have been delivered, payment of a future delivery has been made (on account or deposit) or if the VAT invoice precedes the date before the delivery of the services or goods.
I don’t have to charge VAT to overseas customers.
Business to business (B2B) sales are accounted for through the reverse charge in Europe, whereas business to customer (B2C) sales are subject to the distance selling thresholds (that vary from country to country).
I don’t have to register for VAT in another EU country – HMRC will never find out.
Oh yes you do and it is important you register for VAT in another EU country. HMRC can find out through cross-border audits. This will become increasingly more important now we have left the EU, fines and penalties are becoming increasingly common.
I can reclaim VAT from another EU country on my VAT return.
If VAT has been correctly charged (based on place of supply rules), then it may be possible for you to recover the VAT in the country where it was incurred, subject to local guidelines.
I’m not worried, after all VAT is simple: It’s just about inputs and outputs at 20%.
VAT isn’t simple. Yes, in many instances, businesses have straight-forward transactions, but you just have to look at the legislation and UK and European case law to see there are many grey areas that are constantly being scrutinised, reviewed and refined.
My Financial records are sufficient support for VAT records.
Many businesses believe that financial records, such as their bank statements, can be used to provide HMRC with details of their VAT affairs.
VAT is charged via invoices raised and received and these need to be recorded in a proper bookkeeping system. Your bank account will help with the bookkeeping and if you use the cash accounting method for VAT it will be essential for your VAT returns, but you still need to keep your invoices.
VAT registration is about turnover and I am below the threshold.
At least until 1st April 2022 the VAT registration threshold is £85,000
This threshold is calculated using a rolling 12 month turnover period and if you expect to go over the threshold within the next 30 days you must register for VAT.
I’m registered for VAT, but I don’t need to charge VAT on all of my goods and services.
Sorry, but if your VAT registered you must charge VAT on all VAT-able sales. The standard rate of VAT is 20%; there is a reduced rate of 5% and some goods and services may be zero-rated or exempt from VAT.
I can do my VAT returns alongside my annual accounts
No, sorry again. If you are VAT registered you must complete and file a VAT return, usually every quarter and that return is due seven days after the end of the month following the previous VAT return date. For example your VAT quarter ends 28 February, your VAT return needs filing and any VAT paying by the 7 April.
Whatever way you look at it, VAT registration is far from easy. More importantly there can be changes in regulations at various times during the year. For this reason alone, having an accountant to keep you up-to-date, so you avoid unnecessary penalties is an essential part of running a successful business.
When it comes to your company’s accounts and tax returns. GW & Co Ltd, offers Fresh Thinking, Friendly Advice for Your Business Success. If you’d like to talk about the issues raised in this article or any other accounting challenge facing your business, please do not hesitate to get in touch.
Tel: 01326 378288
Email: info@gw-accountants.co.uk
