We know that all business owners want to save money we can, that is completely normal. However, trying to save money by completing your own VAT returns can result in it costing you more. Here at Direct Peak we are a local accountancy firm in Peterborough and we can help you complete your VAT returns correctly and on time.
You might even find that by using a local accountancy firm in Peterborough for your VAT returns you could end up saving more money than you pay, not to mention the time and stress you will save.
In this article we have put together just some of the common mistakes that people make when doing their own VAT returns. So, if you do decide to do your own VAT returns you know some of the mistakes you can avoid.
- Flat Rate Scheme
If your company is registered for the Flat Rate Scheme then the box 6 figure on your VAT return needs to show the gross sales for that period. While you charge VAT at 20% on your net sales, the Flat Rate Percentage is applied to your gross sales. When people return their own VAT returns as registered Flat Rate Scheme businesses, this is a mistake that is often made.
- Nil VAT Returns
People commonly believe that if you do not trade in a period that you don’t need to submit a VAT return. However this is not true. Instead you need to submit a VAT return that says the sales were none. As no sales were made therefore no VAT is due. It is important that you remember if you’re using Standard Rate rules for VAT that there may be some VAT reclaimable. This will create a refund from HMRC for that quarter. If you are on the Flat Rate Scheme and have a single purchase of capital expenditure goods that cost at least £2,000 (VAT inclusive) then the input VAT may still be able to be reclaimed.
- Flat Rate Percentage
If you are registered for the Flat Rate Scheme as a company then you must follow the new rules that came in during April 2017. These rules are in regards to ‘limited cost businesses’ and came in play from HMRC. These rules can be confusing for some business owners because it is hard to know the correct percentage that needs to be applied. This is especially the case if you are still in your 1% discount period.
If you would like to work with a local accountancy firm in Peterborough on your VAT returns then please contact our team. We would be happy to discuss your business and how we can help make your VAT returns easier.
When Does My Start-Up Need To Start Paying VAT?
As accountants in Peterborough we meet lots of new and start-up business owners that have set up their own business through a passion or a desire; they are amazing at the business services or products they offer, but when it comes to all the other ‘business bits’ there is some confusion.
One of the most common questions we are asked by start-ups is when their business needs to start paying VAT
The magic numbers
The magic number for VAT is £83k; this means that when your business gets close to a turnover of £83,000 you need to register for VAT with HMRC and begin collecting and paying tax on your eligible products or services.
As a start-up business, a turnover of £83k may seem like a million miles away, but here are some top tips to help you make sure your business is ready for VAT when the time comes.
Make sure you keep a close eye on your turnover and regularly check how close your sales are to bringing in the magic number of £83k. If you use cloud accounting or a XERO accountant in Peterborough this will be easy to keep an eye on, and when you are close you can start planning ahead for VAT.
Paying VAT for your start-up business will be much easier if your financial processes are working efficiently and giving you the numbers you need, so take the time to do some financial housekeeping, clean up any messy areas and you’ll be ready to roll.
While the registration process only takes around 2 weeks it is a good idea to register for VAT as soon as your business turnover is nearing £75 – £80k. The sooner you start with the preparation the sooner you’ll be ready for all the additional admin that comes with VAT requirements – remember that your accountant in Peterborough can help with this too!
Make sure you plan your quarterly VAT payments; many businesses opt for a separate account for VAT and then work these payments into the budgeting and cash flow for each quarter as it makes it easier to manage financially.
Some businesses choose to register for VAT as soon as they start up as this shows prospective customers and investors that they’re extremely serious about growth and they want to be a big player in the market – however this can have an effect on cash flow and margins.
If you are unsure if you want to register for VAT or not then give us a call; we would be more than happy to talk through the options that are best for you and your business.
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Beginners VAT Guide For Small Businesses
Our professional VAT return accountants in Peterborough work with a lot of clients on their VAT returns throughout the year. However we understand that for a small business, the world of VAT returns can be a confusing world. This is why we have put together a beginners VAT guide for small businesses. This is a really easy guide that gives you the fact about VAT that you need to know.
What is VAT?
We couldn’t complete a beginners VAT guide for small businesses without talking about what VAT is. VAT is Value Added Tax. It is a tax on consumer expenditure and is collected on the sale of goods or services. VAT has been around since 1973 when the UKL joined the EEC. Previously VAT was known as Sales Tax.
What is VAT Charged On?
VAT is often charged on things like the sales of your goods and / or services. It can also be charged on exchanges, for example things like a new car in exchange for an old car. When you are selling your business assets, you can be charged VAT on this too.
Business goods that are used for personal reasons may also have VAT charged on them. You will also be charged VAT on commission as well as items sold to staff, such as uniform or meals. If you hire or lease your goods, VAT will be charged on this too.
When Do I Have To Register For VAT?
If your business has a VAT taxable turnover of £85,000 or more in the last 12 months then you must register for VAT. However, if it is expected that your VAT taxable turnover will be more than £85,000 in the next 30 days period, this is another time that you must register for VAT.
When it comes to the end of a calendar month and you find that the value of your taxable sales exceeds £85,000 over the last 12 months you need to register for VAT. We would recommend that you contact a professional VAT returns accountant who will notify HMRC on your behalf. You will then be VAT registered from the first day of the next month.
Good to Know
If you have just become a VAT registered business but are holding any assets that have been purchased previously you should be able to reclaim VAT back on registration. These assets could be things like furniture, machinery, technology or equipment for example.
However, the most important thing to gain from reading this beginners VAT guide for small businesses is that if you’re in doubt, check! If you’re not sure about anything on your VAT returns then call your specialist VAT returns accountant and ask.
Three New Years Resolutions For Small Business Owners
Research shows that each year around a third of us in the UK will set New Year’s resolutions. The most common resolutions are things like joining the gym, losing weight, quit smoking, drink less alcohol and so on.
However, if you run your own business you may have set some New Year’s resolutions to help improve your business for the New Year? We have listed three new years resolutions for small business owners that we would recommend.
1. Keep Costs Down
Minimising your costs is essential if you want maximise your profits. Money can be wasted in all areas of the business very easily. Cost inefficiencies can build up to large amounts over time if you don’t keep a close eye on what you are spending. If your business slows down between Christmas and the New Year, take advantage of this. Use this time to review your in-comings and outgoings. You may choose to speak to suppliers about discount for customer loyalty for example. You could also introduce staff incentives for finding ways that money can be saved in the business.
It’s a good idea to do quarterly reviews on your spending to quickly spot where money is being spent and if money can be saved.
2. Credit Control Tightening
If you have non-paying and late-paying customers that it is likely you are giving yourself a major cash flow headache. Do you currently carry out credit checks on all new customers? If not then this should be a new year’s resolution for your business. Make sure that your customers receive invoice as soon as possible. Any delays will affect your cash flow, so the sooner the invoice is received by your client; the sooner payment can be made.
We would recommend that you have a credit control system in place that tells you when a payment is overdue so you can chase that late payment before any more work is done.
3. Cash Flow Forecasts
Every year over 32,000 businesses fail in the UK; this is usually because they run out of cash. As a business owner you need to address cash flow issues. You need to keep your financial records up to date so you know how much money your business has available at all times. Creating reliable cash flow forecasts is essential to a successful business.
If you notice that you have a short-term cash flow problem before it is too late then you may be able to cut costs or arrange finance to get you by. Just ignoring your cash flow and hoping for the best is not an option.
These are just three new years resolutions for small business owners that we would recommend. If you would like the help of a local small business accountant in Peterborough to help your business New Year’s resolutions then contact us directly. We would be happy to discuss how we can help you.
Direct Peak provides a dedicated business tax accountant, who will prepare your annual accounts and tax returns. They will be on hand to answer any tax queries you have.
Your business tax accountant will ensure that the company is set up in the most tax-efficient way and that you are claiming for all the correct expenses to maximise your earnings.
What is a VAT Return
A VAT return is a financial document that businesses and individuals are required to submit to tax authorities in many countries, including those in the European Union and various other nations. VAT stands for Value Added Tax, and it is a consumption tax that is typically levied on the value added to goods and services at each stage of production or distribution. VAT is ultimately paid by the end consumer.
Here’s how a VAT return works:
Collection of VAT: Businesses that are registered for VAT collect VAT on behalf of the government on their sales of goods and services. This means they charge VAT to their customers on top of the selling price.
Input VAT: At the same time, businesses can typically claim back the VAT they have paid on their purchases, known as input VAT. This includes VAT paid on raw materials, supplies, and services used in their business operations.
Calculating VAT Liability: The VAT return is a way to reconcile the VAT collected on sales (output VAT) and the VAT paid on purchases (input VAT). If the VAT collected is higher than the VAT paid, the business owes the difference to the tax authorities. If the VAT paid is higher than the VAT collected, the business may be entitled to a refund.
Filing the VAT Return: Businesses must periodically file their VAT returns, usually on a monthly or quarterly basis, depending on the country’s regulations. The return typically includes details of sales, purchases, and the calculated VAT liability. In some cases, it may also involve providing additional information, such as supporting invoices and receipts.
Payment or Refund: Based on the information provided in the VAT return, the business will either need to make a payment to the tax authorities for the amount of VAT they owe or be eligible for a refund if they have overpaid.
The specific rules and regulations for VAT returns can vary from one country to another, and they can also vary for different types of businesses. It;s crucial for businesses to comply with these rules to avoid penalties and maintain good financial records. Additionally, VAT returns are often used as a means of tax collection and to track economic activity within a country.
When are VAT Returns due?
VAT returns are due 1 month and 7 days after the VAT quarter ends.
E.g. VAT quarter end is the 31st January. The VAT return is due by the 7th of March.
It is also worth noting that payment is also due by the same day, so it’s worth getting your VAT return done as early as possible to ensure you have plenty of time to make payment.
We would also advise you to set up a direct debit with HMRC, so the payment is taken automatically.
How to do VAT Returns
Doing VAT returns involves several steps to ensure compliance with tax regulations and to accurately report your VAT transactions. The specific process may vary depending on the country and your business’s size and activities, but here is a general outline of how to do VAT returns:
Register for VAT:
- Determine whether your business is required to register for VAT based on your sales turnover and local regulations.
- If required, complete the VAT registration process with your country;s tax authorities. You will receive a VAT registration number.
Maintain Proper Records:
- Keep detailed records of all your business transactions, including sales, purchases, and other financial data. Ensure that you have invoices, receipts, and other supporting documents.
Collect VAT on Sales:
- Calculate and collect VAT on the goods and services you sell to your customers. This is known as output VAT.
Pay VAT on Purchases:
Keep track of the VAT you pay on your purchases of goods and services. This is known as input VAT.
Calculate VAT Liability:
Periodically (usually monthly or quarterly), calculate your net VAT liability by subtracting the input VAT (VAT you paid) from the output VAT (VAT you collected). If your input VAT is greater than your output VAT, you may be eligible for a refund.
Complete the VAT Return:
- Use the VAT return form provided by your tax authority to report your VAT transactions for the specific period.
- Enter the total output VAT collected during the period.
- Enter the total input VAT paid during the period.
- Calculate the net VAT liability or refund amount.
- Include any additional information or documentation required by your tax authority.
File the VAT Return:
- Submit the completed VAT return to your tax authority by the due date, which is typically a few weeks after the end of the reporting period.
- Many countries offer online filing options for VAT returns, making it easier and more efficient.
Pay VAT (if applicable):
- If your VAT liability is positive (you owe more VAT than you have collected), pay the amount due to the tax authorities by the deadline.
- Ensure you make the payment through the approved payment methods specified by your tax authority.
- Keep copies of your VAT returns and supporting documentation for a specified period, as tax authorities may conduct audits.
- Continuously monitor changes in VAT regulations and ensure that your business complies with all requirements and deadlines.
It’s important to consult with a tax professional or accountant who is knowledgeable about VAT regulations in your specific country, as the rules and requirements can vary widely. They can provide guidance and assistance in properly handling VAT returns and ensuring compliance with local tax laws. Failure to comply with VAT requirements can result in fines and penalties, so accuracy and timeliness are crucial.