HMRC collected a massive £3.4bn extra in VAT underpayments from SME’s and with recent events and the government support given to help businesses survive the pandemic, they are going to be keener than ever before to recoup some coffers.
No one wants a VAT inspection it’s time consuming and stressful and it is your responsibility to check that all the sources of income, all the expenses you have claimed are included in your VAT return. Ignorance is no defence in HMRC’s eyes so here are a few of the most common mistakes we see when business owners are completing their our VAT submissions.
- Not registering to pay VAT in time – You should register within 30 days when your VAT taxable turnover is more than £85,000 over a 12 month period, you accept goods from the EU worth more than £85,000, you expect to go over the threshold in any one 30 day period, or you’ve taken over a business that is already VAT registered
- Getting your travel expenses wrong – It’s a hot topic with HMRC right now. If you want to deduct travel expenses from your taxable income, that travel has to be 100% for business reasons. But there are exceptions around people working from home. For some of them who travel to and from the home, whether or not they have a home office, VAT might not actually be deductible
- Putting the wrong numbers into box 6 of your VAT return – Make sure you use the correct numbers based on the way you pay VAT: either the VAT cash accounting scheme, VAT standard (normal) accounting scheme or the VAT flat rate scheme
- Using the incorrect flat rate % – It helps to get your rate reviewed before you complete your VAT return
- Picking the wrong VAT scheme for your business – To avoid this, make sure you understand the differences and choose the appropriate scheme
- Remember that you can’t claim back VAT on entertainment unless you are entertaining your own employees
- It’s very unwise to split your business into two to spread the VAT load, since it’s something HMRC sees as tax evasion
- Claiming VAT on personal expenses just isn’t worth the risk
- Forgetting to account for VAT is common where it concerns management charges, the disposal of business assets, cash sales, sub-contractor charges for using vans and tools, sales of scrap, staff supplies, restaurant service charges, bartering and more – to get it right you need to familiarise yourself with exactly what is accountable
- Getting VAT on cars wrong – When you buy a car outright, you can’t recover any VAT at all. If you lease or hire a car 50% of the VAT is usually recoverable. It’s very rare indeed to be able to claim back all the VAT on a car purchase unless there’s no way you’ll be driving it for private use
- Getting fuel wrong – You can’t claim the full cost of fuel if your car is used privately without restrictions or without charging VAT via the fuel scale charge
- Getting the employment status of casual or freelance workers wrong – While you might assume someone is self-employed, HMRC might disagree – like so much to do with VAT, it isn’t as simple as you might think
- Not giving enough evidence to support your claims – HMRC are very strict on this matter – remember, if you can’t produce a VAT receipt, you can’t claim
The above are just SOME of the most common mistakes we see, there are many other ways business owners can fall foul of our VAT regulations, they’re complicated!
If you don’t want to risk getting it wrong and you’d like to hand over to the experts then book a Discovery Call with us today