Common Mistakes to Avoid When Registering for VAT

It's important to stay on top of your VAT Accounting if you want to protect your business, pay the correct amount of tax and remain compliant.

VAT is a tax that's charged at 5% or 80% on goods and services not essential. Like any tax, reality is much more complex.

This article will explain some common mistakes that business owners make when it comes to VAT accounting, and how they can be avoided.

What Is VAT?

When a product gains value, VAT is collected. You must collect VAT for HMRC whenever you rent or sell goods or services. Some exceptions apply, like sales outside of the UK. But for most businesses, VAT is applied to all sales if they are VAT registered.

You can claim the VAT charged to you by your suppliers for business expenses as long as you are VAT registered.

What are the most common mistakes that you should avoid?

Use the wrong VAT accounting scheme

Four methods are available for the processing of VAT accounts.

Standard VAT accounting method. You will submit your VAT returns digitally each quarter by using making tax digital-compliant software.

* Annual accounting VAT scheme. It is similar to standard accounting, but you only submit one VAT return per year and pay quarterly according to what you anticipate owing. This method can improve cash flow by making payments more predictable. However, it could lead to overpayments. If your annual taxable income is more than £1.35million, you are not eligible.

* Flat rate scheme. You pay a percentage of your total turnover in VAT under this scheme. You can find the VAT rates for each industry on the government website. This scheme is only available if you have a turnover below £150,000.

Cash accounting scheme. Cash accounting scheme. You record VAT on the day you receive payment, not when you sent the invoice. This is ideal for small businesses with slow payers, or those who don't purchase large quantities on credit. You're also not eligible if you have a turnover above £1.35million.

If you are unsure, it can be difficult to decide which method is best for your business.

Failing to register for VAT in 30 days

It's easy for you to overlook the fact that you have exceeded the threshold. It's especially hard because the threshold is applied on a rolling scale: You must register for VAT when your turnover exceeds £85,000 in the past 12 months and not just during a specific financial year. Register if your expected turnover will exceed the threshold within the next 30 day.

Be sure to track your income and seek advice when you hit the threshold for registration. You'll be able to avoid penalties if you track your monthly income.

If it suits your business, you can register voluntarily for VAT.

Reclaiming VAT without a valid bill

You cannot claim if you do not have a valid invoice for VAT. If HMRC checks your records, you will be penalized if you try to do this.

It must be a VAT invoice and the supplier must have VAT registration. The invoice must also contain the company's name, not the director's. Otherwise, it will not be valid for VAT.

Not applying the correct rules when claiming VAT on motoring costs

Motoring costs, especially car-related ones, have different rules regarding VAT claims. You must pay special attention to these rules.

For example, there is a specific definition for what counts as a car for VAT purposes, and you generally can't recover the VAT charged on purchasing one, unless it's considered an 'excepted' car by HMRC.

If you lease a 'qualifying car' for business purposes, you can usually claim 50% of the VAT.

You can usually reclaim all the VAT on fuel if your car is only used for business purposes. If it's also used for private purposes, you can either reclaim the VAT and pay a separate road fuel scale charge, or only reclaim the amount you use on business trips.CPA (With detailed records to back up your claim.)

Forgetting about these rules can result in costly errors if HMRC carries out an inspection.

Overdue purchase invoices

You might be able to reclaim VAT on invoices that haven't been paid, but only if the following conditions are met:

* 6 months or more have passed since the date of the supply or the date the payment was due, whichever is later

* VAT has already been paid to HMRC

* You've wiped the debt in your VAT accounts and transferred it to a separate bad debt account

* The value must not be more than the normal selling price

* The debt isn't factored in, or a similar arrangement

Records of the invoice and a separate bad debt account must be kept for four years after the claim is made.

Tax on Property

VAT accounting on property can be difficult to navigate, despite how many brilliant articles and guides you can find online. mistakes can cost thousands of pounds.

You'll set yourself up for success by having an expert on your side.It's important to not leave VAT accounting to chance. Contact us at Account Ease to learn more about and how it will impact your business.