The VAT Survival Guide: Common Mistakes and How to Avoid Them

VAT, dun dun dunnn, three little letters that strike fear into the hearts of many entrepreneurs. It can be complicated, time-consuming, and getting it wrong can be costly. But VAT doesn’t have to be your business’s nemesis. Here’s how to navigate the world of VAT, avoid common pitfalls, and keep HMRC off your back.

Mistake 1: Failing to Register on Time

Businesses must register for VAT when their turnover exceeds £90,000 in any 12-month period. Missing the deadline can result in penalties.

• Tip: Monitor your rolling turnover monthly, not annually.

• Solution: Use accounting software to track your turnover and alert you when you’re nearing the threshold.

Mistake 2: Incorrectly Charging VAT

Charging the wrong VAT rate (or charging VAT when you shouldn’t) is a common error.

• Know Your Rates: Standard rate (20%), reduced rate (5%), and zero rate (0%).

• Check Your Products: Some items, like children’s clothes or books, are zero-rated, but others aren’t as clear-cut.

Mistake 3: Mismanaging VAT Returns

Submitting inaccurate returns or missing deadlines can lead to penalties and interest charges.

• Solution: Use Making Tax Digital (MTD)-compliant software to automate calculations and file returns.

• Pro Tip: Set calendar reminders for VAT deadlines.

Mistake 4: Failing to Keep Records

HMRC requires businesses to maintain VAT records for at least six years. Failure to do so can lead to penalties during inspections.

• Solution: Invest in digital storage solutions to keep invoices, receipts, and returns organised.

Streamlining VAT Compliance

• Automate Where Possible: Use software like Xero, QuickBooks, or Sage to handle calculations and submissions.

• Hire a Specialist: A VAT Accountant can save you money in the long run by ensuring compliance and identifying opportunities for savings.

Conclusion

VAT doesn’t have to be a headache. By understanding the rules, avoiding common mistakes, and using the right tools, you can stay compliant and save yourself time, money, and stress. With a little effort upfront, VAT can go from dreaded admin to just another part of running a successful business.

p.s. not advice obvs!