Tax & admin · 10 March 2017

Are you at risk of making these common VAT mistakes?

Which VAT mistakes could you be avoiding today?
Here, Jonathan Amponsah, a chartered tax adviser, accountant and founder and CEO of The Tax Guys, shares some common VAT mistakes to avoid and a way of seeing tax returns more positively.

Once your business is VAT registered, there is no escape from the regularity of dealing with VAT returns. To start with, here are the three most common VAT schemes and methods businesses use:

  • The standard (or normal) accounting scheme
Here, a business owner pays VAT on sales whether or not your customers have paid. You then reclaim VAT from your suppliers? invoices even if you have not yet paid the bill.

  • The cash accounting scheme
Businesses pay and reclaim VAT based on what theyve received and paid.

  • The flat rate scheme
You charge your customers at the appropriate rate (for example, 20 per cent), and you pay a reduced percentage (say, of 14.5per cent) to HMRC. You are not allowed to reclaim VAT on your expenses.

Eight VAT mistakes to avoid as a small business owner

(1) Supporting evidence is missing

There is one very straight forward rule no VAT receipt means no claim. Even if you have a VAT receipt, you should double check that the item purchased does carry VAT.

There are apps which let you take copies of your receipts allowing automatic storage in your book keeping system. You need never lose a receipt again.

(2) Making assumptions about which scheme is best

The flat rate scheme delivers cashflow savings to small business owners, and it does simplify the accounting to some extent.

However, it is very important to compare this scheme to, say, the cash accounting scheme and test which is best for your business.

Where a business has a significant amount of expenses it pays VAT on, joining the flat rate scheme may not be tax efficient.

If your business has some exempt income (rental income, for example) you need to be very careful when joining the scheme. This is because you end up having to pay VAT on income that is normally exempt from VAT.

(3) Putting incorrect figures on the VAT return

There is one box on the VAT return form where HMRC picks up many mistakes box six.

For the flat rate scheme:

(4) Make sure you’ve used gross income to apply the flat rate percentage to

For the cash accounting scheme:

  • Use income net of VAT in box six
It is possible you will have other items from box eight which feed into box six. Always take extra care and check that there are plausible reasons for any differences.

(5) Errors relating to non-business use expenses

Where you have expenses, for example broadband, which is partly business and partly personal, you cannot claim VAT on the full amount. Instead you need to apply a restriction on the non-business element of the expense.

A common error is claiming VAT on a motor vehicle which is available for private use. The VAT cannot be claimed except where the vehicle is to be used exclusively for business purposes.

Another VAT mistakes is claiming the full costs of fuel where the car is available for private use without restriction or without charging a corresponding VAT in the form of fuel scale charge.

(6) Claiming VAT twice

This is a common mistake with the normal accounting scheme and occurs when VAT is claimed on the actual invoices as well as the statements or pro-forma invoices.



Jonathan Amponsah CTA FCCA is an award-winning chartered tax adviser and accountant, and the CEO of The Tax Guys.

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