Common VAT Problems

VAT is a tax added to many purchase transactions. Companies with a turnover of £85,000 or more must register and charge VAT on their sales. As a VAT registered business, you charge VAT to your customers which you then pay to HMRC; in turn, you can claim VAT back for business purchases, reducing your liability to HMRC.

VAT can be complicated, so we thought we would help by letting you know some common pitfalls we come across and tips on how to avoid them.

The importance of documentation

You can only reclaim VAT where you have evidence that VAT has been charged - so always check that an invoice or receipt from your suppliers shows a GB VAT registration number.

On the other side of that, if you are VAT registered you must issue VAT invoices to your customers, as above these must show your VAT number along with other details shown here: https://www.gov.uk/guidance/record-keeping-for-vat-notice-70021

Think about the type of transaction

i’ve got a valid VAT receipt or invoice, so I can claim the VAT, right? Not so fast! VAT cannot be claimed on some purchases even if they are for your business:

  • You cannot reclaim VAT on the provision of business entertainment; but you can on staff entertainment. See our article on tips for staff vs business entertainment: https://www.accountabilityedinburgh.co.uk/blog/staff-entertainment-and-trivial-benefits

  • You cannot claim VAT on insurance - you will see an insurance premium tax on invoices, but this is not VAT and cannot be reclaimed.

  • This is an obvious one - but you cannot reclaim VAT on non-business expenses. So, if you purchase an item through your business that is for your personal use, no VAT can be claimed.

Do not think that the VAT you collect is yours

You are collecting the VAT on behalf of HMRC - the VAT you are paid by your customers does not form part of your profits and you should ensure you are saving enough each month to cover your VAT liability at the end of the quarter. Don’t get to the point of submitting your VAT claim and then discover that you do not have enough to pay it!

If you would like support with your VAT returns please do get in touch.

Sarah Green