Five VAT saving tips for businesses

Managing Value-Added Tax (VAT) contributions can be a complex and daunting task for growing businesses.

However, there are several ways to make this process more manageable and cost-effective, streamlining your workflow and increasing your profitability.

Here are five VAT saving tips that could significantly benefit your business.

Choose the right VAT scheme

The UK offers various VAT schemes, each with its own set of rules and benefits.

  • Standard VAT accounting: This is the default scheme where you pay VAT on sales and reclaim VAT on purchases every quarter.
  • Flat Rate scheme: Simplifies your VAT accounting by applying a fixed flat rate percentage to your turnover. Ideal for businesses with a turnover under £150,000.
  • Cash accounting scheme: Allows you to pay VAT only when your customer pays you, which can be beneficial for cash flow. Suitable for businesses with a turnover of up to £1.35 million.
  • Annual accounting scheme: You make advance VAT payments based on your last return (or estimates for new businesses), and then reconcile at the end of the year. Suitable for businesses with a turnover of up to £1.35 million.
  • Retail schemes: Designed for businesses that sell directly to the public, these schemes simplify the calculation of VAT based on the types of goods sold.
  • Margin scheme: Useful for businesses dealing in second-hand goods, antiques, or collectables. You pay VAT only on the margin between the cost of an item and its selling price.

It is always best to consult with your accountant to determine which scheme best suits your business needs.

Reclaim VAT on business expenses

Many small businesses overlook the opportunity to reclaim VAT on eligible business expenses.

These can range from office supplies to fuel costs for business trips.

Ensure you keep all your receipts and consult your accountant to ensure you’re reclaiming all the VAT you’re entitled to.

Understand zero-rated and exempt supplies

Not all goods and services are subject to VAT. Some are zero-rated (i.e., no VAT),  while others are VAT-exempt, like financial services.

Understanding the difference can help you make smarter business decisions.

For example, if you sell both zero-rated and standard-rated products, you could focus more on the zero-rated items to reduce your VAT liability.

Use the capital goods scheme for large purchases

If you’re planning to make a significant investment in capital goods, such as machinery or computer equipment, the Capital Goods Scheme allows you to adjust the VAT reclaimed over a period of years.

This can be particularly beneficial if your business model or VAT rate changes over time.

Regularly review and update your VAT records

Accurate record-keeping is crucial for successful VAT management.

Regularly review your VAT records to ensure they are up-to-date and error-free.

This not only helps you stay compliant but also prepares you for any potential VAT inspections.

Here to help

Managing VAT effectively is crucial for the financial health of your small business.

By choosing the right VAT scheme, reclaiming VAT on business expenses, understanding zero-rated and exempt supplies, utilising the Capital Goods Scheme, and maintaining accurate records, you can save both time and money.

As always, you should consult one of our experienced VAT specialists for tailored advice that meets your specific business needs.

To learn more about reducing your VAT obligations and maximising tax efficiency, please contact one of our experts.

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