What Small Business Owners Do Not Know About VAT

Should I put VAT on my invoice?

Unless you are registered for VAT, the answer is no. And you’ll know if you are registered for VAT because you will have been through that registration process, your invoices and receipts to customers & clients should not include any VAT.

If you are registered for VAT, you should ensure that your VAT registration number is on your invoice (the client/customer should be checking before claiming the VAT back through their own books, although sadly many people don’t). If you prepare manual invoices in Word or Excel, please also ensure that you are calculating it correctly – there are lots of different ways of calculating 20% and not all of them are correct!

Should I be VAT registered?

Once you hit the registration level for VAT you must register, submit VAT returns and pay the VAT you’ve collected over to the government. The criteria for registering are two-fold:

  • £85,000 turnover
  • in a consecutive 12 months

Some businesses will decide to register for VAT before it becomes a requirment. Usually this is because they sell to VAT registered companies, so the VAT they have to add ontop of their invoices won’t impact the client/customer, but it does mean that they get to claim back the VAT on their purchases.

Make sure you plan for your VAT registration. I have one client who found himself suddenly on the VAT registration threshold, and that caused problems with the final payments due on a contract that had been pre-agreed as a total price. The systems of the company the contract was with meant a lot of back and forth between me, the client and the contracting company.

Do I need an Accountant to help me with my VAT?

I would advise getting an accountant as it takes a lot of the stress out of it and you get answers a lot quicker, however, it is perfectly possible to do it all by yourself – there’s plenty of information on the government website and with products like Xero, it does make it very easy to do the actual filings.

If you do it yourself, it maybe worth having quarterly reviews of your bookkeeping by an accountant at least for the first year – we offer these quartly reviews as part of our Xero Support Package at SGW.

Do I need to use Software for my VAT returns?

There is now something called Making Tax Digital (MTD) in place which means you have to be able to submit your VAT returns from the software that keeps all your records. HMRC no longer accept VAT returns submitted by manually entering numbers into HMRC Online (or Government Gateway).

I am an advocate of Xero. I think it is very intuitive software that has most features you need, and large ecosystem of apps that plug into Xero to give you additional fucntionality. There are other options out there such as QuickBooks, FreeAgent etc. They are all products that will do the job (they’re just not my favourite!).

What can I claim on my VAT return?

It depends which VAT scheme you are on – if you are on standard scheme, you are able to claim the VAT back that you’ve paid on any expenses that you’e purchased through the business (that are for the business – you can’t claim VAT on personal purchases).

If you are on flat rate scheme, you won’t be able to claim back the VAT paidon expenses, but you only have to pay over a reduced amount out of the 20% you have charged on your invoices. What percentage you have to pay depends on the industry you are in (product heavy industry percentages will be much lower than service industries)

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