Value-Added Tax (VAT) is a tax on goods and services that is charged in many countries around the world. If you are running a business, it’s important to be aware of the common mistakes that businesses make when it comes to VAT.
In this blog post, we will highlight five common VAT mistakes and provide tips on how to avoid them.
1. Failing to Register for VAT
One of the most common errors that businesses make in relation to VAT is failing to register for it in a timely manner. In the UK, if your business turnover surpasses the current VAT registration threshold of £85,000, you are obligated to register for VAT.
Failure to do so can lead to penalties and interest charges. To avoid this mistake, it’s crucial to keep a close eye on your turnover and register for VAT as soon as you surpass the threshold.
However, it’s important to note that even if your business turnover is below the VAT registration threshold, you can still opt to register voluntarily.
This can be advantageous if you sell goods or services to other VAT-registered businesses, as they can claim back the VAT that you charge them.
2. Not Charging VAT Correctly
Another frequent mistake that businesses make is charging the incorrect amount of VAT. Various goods and services are subject to different VAT rates, and it’s vital to apply the appropriate rate. Additionally, businesses must be aware of when VAT should be charged, such as on sales to other VAT-registered businesses.
For instance, in the UK, the majority of goods and services are subject to the standard rate of VAT, which currently stands at 20%. However, there are also reduced rates of VAT (such as 5% for some energy-saving products) and zero rates of VAT (such as for most food and children’s clothes).
To avoid this mistake, it’s important to comprehend the VAT rules that are applicable to your business and seek advice when necessary. It’s worth noting that if you make mistakes when charging VAT, you may be able to rectify them on your next VAT return.
3. Failing to Keep Accurate Records
Keeping accurate VAT records is essential for businesses that are registered for VAT. This includes keeping track of sales, purchases, and VAT payments. Failing to keep accurate records can lead to errors and penalties.
To avoid this mistake, make sure to keep your records up to date and use accounting software or a bookkeeper to help you manage your VAT. You should also make sure to keep all invoices and receipts related to your VAT transactions, as you may need to provide evidence to HM Revenue and Customs (HMRC) if you are audited.
4. Missing VAT Deadlines
Businesses that are registered for VAT must submit VAT returns and make VAT payments on time. Missing deadlines can result in penalties and interest charges.
To avoid this mistake, make sure to diarise the VAT deadlines and plan ahead to ensure that you have enough funds to pay the VAT bill. In the UK, the VAT return and payment deadlines are usually one calendar month and seven calendar days after the end of the VAT period respectively.
5. Ignoring VAT Changes
VAT rules and rates can change regularly, and businesses need to stay up to date with these changes. Ignoring VAT changes can lead to errors and penalties.
For example, in the UK, there have been recent changes to the VAT rules for goods imported from the EU, which have resulted in new VAT and customs procedures.
To avoid this mistake, make sure to keep up to date with VAT news and seek advice if you are unsure about any changes. You can sign up for email alerts from HMRC and attend webinars or training sessions to learn about any changes that may affect your business.
In conclusion, businesses that are registered for VAT need to ensure that they are complying with the VAT rules and regulations. By avoiding the common mistakes outlined in this blog post, you can save time, money, and stress. Make sure to register for VAT on time, charge VAT correctly, keep accurate records, meet VAT deadlines, and stay up to date with VAT changes.
In addition, seeking advice from a specialist outsourced bookkeeping and accounting services provider, like Jobfinity, can help you navigate the complexities of VAT and ensure that you are fully compliant. Our team of experienced professionals can help you with all aspects of VAT, including registration, record-keeping, and compliance. We can also provide advice and guidance on VAT planning and strategy, as well as help you to manage your cash flow and make the most of VAT opportunities.
So, if you want to avoid common VAT mistakes and ensure that your business is fully compliant with the VAT rules and regulations, contact Jobfinity today. We are here to help you grow your business and achieve your goals.