VAT – Value Added Tax
VAT (Value added tax) is very much part of all our lives. Many of the everyday products or services that we use have VAT charged on them. The standard rate of VAT is 20% and therefore considerably increases the cost.
Many small business owners are faced with a dilemma when it comes to charging VAT. For those with a turnover of over £81,000 per annum for VAT taxable goods or services registration and charging VAT is compulsory. Those business owners who only supply their time are often trading at well under £81,000 per annum and therefore can have a competitive edge over businesses that charge VAT. This upsets businesses that have grown in size and who now compete against those not charging VAT.
If you want to grow your business particularly if you are charging for more than just your own labour you will be faced with either staying small or registering for VAT. Should you fear becoming VAT registered?
How easy is it to register for VAT and to account for it? I put these questions and more to Phil Hendy of PAH Accounting based in Devizes, Wiltshire. Phil has a wealth of experience helping business owners with VAT.
Is it difficult for a business to register for VAT?
It is a relatively simple process and can be done online via the HMRC website. Just be a bit careful with some of the question as they are not necessarily relevant to your business.
Be wary of the thresholds for registration, i.e. when Turnover in a rolling 12 month period is £81,000 you must register. note the rolling 12 months period, this often catches people as they try to ‘time’ their sales to miss this at year end and delay the process. There may be some significant benefits to voluntary registration.
Does accounting for VAT create problems for business owners?
It does for some; however, this often depends how organised the business owner is. If they keep nice, neat records ?then it will be straightforward as you will merely be including VAT on your sales and claiming it on your purchases. If they are not organised and tend to be ‘last minute’ with everything this makes things much harder. There may also be some industry specific issues as to whether vat is due on sales and claimable on purchases.
One of the key benefits is that it enforces records to be kept up to date at the very least quarterly. This should help when a business is preparing its end of year figure.
What top tips can you give that makes being VAT registered easier?
Systematise – ensure that an appropriate system is used for recording sales and purchases, most importantly keep on top of it.
Put money aside – when making vat-able sales, ensure that you remember that VAT is the charge ‘on top’ of your normal sales price and does not effectively belong to you. Having a business deposit account will definitely help.
Look at the various schemes, in particular, Cash Accounting and Flat Rate – there may be some significant savings to be made.
Do you recommend any software that will help with the accounting process?
There are lots of software systems; however, I would definitely recommend going cloud based. The one I tend to promote is KashFlow and if you go through my link there is a 60 day trial rather than the usual 14 days. Click here to start your free trial.
I would like to thank Phil Hendy for answering these questions and if you need help with VAT or any other aspect of your business accounts you can visit his website or telephone 01380 860151.