When introduced into the UK in 1973, VAT was described as a simple tax, but for many small business owners it is anything but simple and if you fall into the trap of making any of the common mistakes we have detailed below, it can be extremely costly.
Take a look…
- Entering the wrong figures on the VAT return
Check, check and double check, or get someone else to check over your VAT return before you make the submission
- Lack of satisfactory evidence to support VAT reclaims
When it comes to claiming back VAT, the general rule is this: No VAT receipt, No claim! And even where you have a VAT receipt, make sure the item you bought does carry VAT. Whilst there are few exceptions to this rule, why take the risk?
- Claiming back VAT on non-business use expenses
Where you’ve incurred expenses (for example, broadband at home) which is partly business and partly personal, we often find that VAT has been claimed on the full amount instead of applying a restriction on the personal or non-business element of the expense.
- Incorrectly claiming for VAT on motor vehicle
A common error is to claim VAT on a motor vehicle which is available for private use. The VAT can only be claimed back where the vehicle is to be used exclusively for business purposes and will not be available for anyone’s private use.
- Claiming back VAT on entertainment
Although in some business sectors, entertaining clients is justifiable in order to win contracts, VAT on these expenses is normally blocked and cannot be claimed back.
- Poor bookkeeping
This can cover a number of mistakes but the common ones HMRC tend to look for fall under the classification of transactions area, for example:
- Has business entertainment been classified as marketing and VAT claimed?
- Has input tax (VAT) been claimed on expenses which do not carry VAT (such as stamps, train/air/bus tickets, some tolls)?
- Has input tax been claimed on costs incurred outside the UK (for example conference/business trip accommodation and meals)?
- Claiming back VAT twice
This is a common mistake with the VAT Normal Accounting Scheme and occurs when VAT is claimed on the actual invoices as well as the statements or pro-forma invoices.
- Ignoring VAT demands and notices
Remember the VAT-man wants his money – and is legally entitled to it. Ignoring demands and notices from HMRC can be very costly. For example, did you know that when HMRC sends you an assessment (estimate) and you fail to send in the correct VAT return in good time, if the assessments turn out to be higher than the actual return, HMRC is not obliged to change the figures?
- Failing to repay VAT on supplier invoices
Where VAT has been recovered on purchases from a supplier, if you have not paid this supplier for over six months, you are required to repay any VAT recovered to HMRC.Similarly, where a customer has not paid you for over six months and you’ve already paid VAT on that invoice to HMRC, you can claim that VAT back. If you’re using the Standard VAT Scheme, do watch out for this during your checks and reviews.
Finally and the most common mistake made by small business owners is not seeking help with their VAT returns – Here are Magpie we make it our business to make sure you avoid these pitfalls, so get in touch, we’re happy to help.