Let’s talk about V…A….T!
Because VAT has to be one of the most most overlooked taxes by accountants and business owners alike. Which is why we pay it some close attention, give it some love.
Many are not aware of how many different VAT schemes and variations by industry there actually are. Yes we all know the general rule that it’s 20 per cent as standard rate however a business may have the option to; or due to its sales type have to change to an alternate scheme. We advise that this is kept under regular review.
Examples of just some of the current VAT schemes are:
- Invoice accounting
- Cash accounting
- The flat rate
- Annual accounting
- Different VAT rates for different activities (zero-rated, EC sales, reduced 5% rate, exempt)
- Retail and VAT margin scheme
- Partial exemption
- VAT Mini One Stop Shop Scheme (digital services)
- Capital Goods Scheme
Are you still with us….exactly, what on earth do they all mean and when would they apply…
This is why the subject of VAT may seem dull or just too complicated, however missing an opportunity to improve a business’ cashflow or an opportunity to reclaim VAT from before you register for VAT is not dull. We actually get excited about this for our clients.
What could happen if your business was on the wrong scheme or there was a VAT error?
We are all for risk minimisation, as the last thing a business owner wants is uncertainty over whether their business’ VAT submissions are right or not. Which is also why we do not shy away from talking about and tackling VAT.
Proceed with caution as in the event that HMRC raise a VAT enquiry and if errors are found the resulting liability would be damaging to any business as on top of the additional liability there may also be back-dated surcharges (as a standard going back four years, but up to 20 years for deliberate errors!) and ultimately unplanned cashflow issues for your business.
What can you do?
If you happen to identify an error, we recommend you firstly speak with your trusted adviser, follow the HMRC procedures in order to voluntarily correct the error immediately (there are special rules on how).
If the business is about to or has started to trade differently, new sales type or overseas, it is always worth seeking up front advice to ensure you charge at the correct VAT rate.
VAT did you know!
Finally a fun fact – the sale of a qualifying ship or aircraft (certain criteria being met) is a zero-rated supply for the purposes of VAT. This zero-rating treatment can also apply to goods and services for aircrafts and ships, in the aviation and marine sectors.
This is an example of how diverse and niche the rules of VAT can be.
Should you have any questions on your VAT, then please do contact us on 01730 719250 or email firstname.lastname@example.org.
Footnote at 26 November 2020
Latest on COVID-19 VAT deferrals
Did you defer your VAT payment during 20 March and 30 June 2020? If the answer is yes, then you now have two options available:
- Deadline: 31st March 2021 for those that can pay their deferred VAT.
- Deadline: 31st March 2022 is for those that would prefer to pay in smaller payments over a longer period interest free but you will need to opt-in to the VAT deferral scheme.
Things to remember – Direct Debit reinstate and continue to file your VAT online on time, otherwise the VAT should be paid one month and seven days after the end of the VAT quarter, if you are on Direct Debit you gain a few extra days on top.
Written by Jackie Redmond, November 26, 2020