9 Creative Ways to Slash Your VAT Expenses
Is being VAT registered killing your business? Read on to find how you can make your business grow and avoid hefty VAT bills.
(5-minute read)
We will cover:
- The pros and cons of being VAT registered
- Easy ways to reduce your VAT bill
The Reality: Being VAT Registered Is Not Killing Your Business
You might think being VAT registered…
- Is a huge drain on your resources, both financially and time-wise
- Means having to fill out far more paperwork
- Can be a real strain, due to additional costs
- Will make you lose clients due to increasing your prices by 20%
But in fact, being registered for VAT…
- Positions your business for long-term success, if you plan ahead
- Gives you an opportunity to track your sales and expenses more accurately, which can help you make better financial decisions
- Allows you to reclaim VAT on any of your own purchases, which can offset any additional costs associated with VAT registration
- Can give potential customers more confidence in their purchases
Despite all of these potential benefits, there are still a few caveats to being VAT registered.
The main one is that it requires a high level of accuracy when dealing with your finances, which can leave even the most rigorous small business owners tied up in knots.
The paperwork alone can be a massive undertaking and can take up a huge amount of time, which could be spent on more important tasks.
Furthermore, if the paperwork isn’t completed properly and submitted on time, your business could face hefty fines.
The Stress of VAT
The amount of stress that VAT puts on a small business can be immense if not managed properly.
Every single detail needs to be accounted for, and every transaction needs to be recorded in the right way.
Otherwise, the company could face huge penalties.
That’s why it’s so important to ensure that everything is done correctly.
Finally, it’s essential to consider the customer’s perspective and make sure they understand why VAT is necessary.
With careful planning and consideration, it’s possible to manage the VAT requirement without putting too much strain on the business.
9 Creative Ways to Slash Your VAT Expenses
We’ve already covered ways to save money in your VAT bill in a previous blog post.
To read the tips in detail, click here.
Here are a few tips we’ve already discussed:
1. Claim business expenses
2. Claim ‘subsistence’
3. Know your rights when converting buildings
4. Use unregistered traders
5. Claim for some car accessories
6. Benefit from the ‘scorched-earth’ policy when rebuilding a house
We’d also like to add to the list the following ways you can reduce your VAT bill:
7. Provide continuous supplies of services
If your business provides ongoing services to clients and you bill them multiple times over a period, you can avoid paying VAT immediately by not issuing a formal VAT invoice.
Instead, you can issue a payment request that does not include their VAT number and explicitly states that it is not a VAT invoice.
This means you only have to pay VAT when the client pays you.
This creates a cash flow advantage for your business because you can hold onto the VAT element until you receive payment, rather than having to pay it to HMRC right away.
8. Claim bad debt relief
When you issue a VAT invoice, you have to pay the VAT to HMRC, even if your customer hasn’t paid you yet.
Sometimes, customers take a long time to pay, and you can claim back the VAT as a ‘bad debt relief’.
This means you can put in a refund claim on your VAT return when the debt is more than six months old, regardless of whether you think the customer will pay or not.
But to do this, you need to keep proper records of these claims.
If the customer eventually pays, you will have to refund the refund you claimed.
9. Do a mock VAT inspection
If you run a business and are registered for VAT, it’s important to be prepared for HMRC inquiries and control visits, which can be costly and stressful.
A VAT officer may be looking for errors to use against you, so you should avoid expensive VAT mistakes.
It’s a good idea to have someone review your books as if they were conducting a VAT control visit.
These mock audits can help identify any errors or misunderstandings in your VAT returns, which can be repeated multiple times if not corrected.
By seeking the assistance of a professional, you can avoid costly mistakes and ensure that your business remains compliant with the complex nature of VAT law.
Our tax accountants can provide expert advice to keep you on the right track.
Conclusion
Even though you might think you’ll lose clients because of the 20% price increase, the reality is you can claim back the VAT on goods and services you bought.
Ultimately, this can leave you better off because you’ll be charging more but are also able to claim more.
The key to a successful business is to work through the rules – by having a thoughtful business plan.
In your business plan, considering everything that will impact your business and how – including what will happen once you hit the turnover threshold.
A higher turnover is a sign of growth, and you can handle the costs associated with being VAT-registered, without it having a negative impact on your business, if you plan ahead.
Working with an accountant ensures you keep your finances in order and avoid hefty costs in the future.
We can help you grow your business and reduce your tax liability. Subscribe to our Friday Tax Tips to get expert insights straight to your inbox.
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Kind regards Ilyas