Vat Tips All Small Businesses Should Know

If you have a taxable turnover which exceeds a set amount, you will need to register for tax.  It is possible to voluntary register for VAT if your turnover does not reach this set amount. Your taxable turnover will be the sales of services and goods which are not VAT-exempt.  Some of the VAT-exempt services and products will be postage, insurance, and medical services....


Vat Tips All Small Businesses Should Know
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When you register for VAT, you need to consider when you will want your VAT quarter to end.  It is generally easier for your accountant if you have a VAT quarter end at the same time as your year-end.

There are also a various VAT schemes that you can choose from when you register and you need to find the right one for your business. These will include:

• Standard VAT
• Flat rate scheme
• Cash accounting scheme
• Annual accounting scheme

If you have customers that take a long time to pay you, you should consider the cash accounting scheme as it will be more beneficial to your cash flow.  With this scheme, you will only pay VAT when your invoice to the customer has been paid. You can then reclaim VAT when you pay the purchase invoice.

Flat rate accounting is the best scheme for businesses will a smaller turnover as it is a simplified scheme.  With this scheme, you will pay a flat rate of VAT based on the sector your business is in. You will not be able to reclaim purchase VAT with this scheme.

Once You Have Registered
Once you have registered for VAT, you need to ensure that you have accurate records of your purchases and sales.  When registering for VAT, it is recommended that you invest in a computerized accounting system. If your records are not in order, you could face an inspection of your business by the VAT authority and a penalty for not maintaining correct records.  You need to legally keep all of your records for at least 6 years.

Each sales invoice that your business has should have a unique invoice number. You also need to quote your VAT number on all of the invoices you provide. Copies of your VAT returns and proof of them will need to be kept.  If you are subject to an inspection, you will need to provide these copies.

When you make a purchase that you are going to reclaim VAT on, you will need to ask for a VAT receipt.  There are some businesses that are not VAT registered and you will not be able to reclaim VAT on purchases from them.  You will also not be able to reclaim VAT on any entertainment expenses and there are special rules that you need to know about for reclaiming VAT on auto expenses and staff travel expenses.  

There are other items which are outside the scope of VAT including wages and payments to the tax authority for corporation tax, PAYE, and VAT.  These payments should not be included on your VAT returns.  Other items that should be left off the VAT return include dividends paid, loan repayments, road tax, rates and MOT costs.  
Inside the EU vat rates differ, for instance Finland Vat rates are different to British ones. If you are going to be importing goods from outside of the EU and are using an agent to handle this, you should receive a C79 form from them each month.  This form will tell you about the import VAT that was paid and should be included in the VAT return. You need to keep all of these forms as they are proof for the VAT claim.


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