VAT tips for businesses

1. Should you be VAT registered?

If your taxable UK supplies are above £70,000 p.a., you must register compulsorily, unless they are all zero-rated, in which case, you could apply for exemption from registration. If your taxable supplies are below £70,000, and your customers are mainly or wholly VAT-registered, you can register voluntarily to recover UK input tax.

2. Make sure you recover all pre-registration VAT

VAT incurred up to four years previously on capital assets and stock which is still on hand at the registration date can be recovered. VAT paid for services received up to six months before the registration date can usually be deducted.

3. Unregistered businesses can also save VAT

The use of unregistered suppliers may help. If you are looking to rent premises, consider looking for a property with a non-VAT rent, or else raise the issue of your inability to recover VAT in the rent negotiations.

4. Use an appropriate simplification scheme

The Flat Rate Scheme (with a 1% discount in first year of registration), Cash Accounting, or Annual Accounting can all create cash flow and/or administrative savings.

5. Be compliant

Keeping up-to-date VAT records, submitting and paying VAT returns on time, and disclosing errors as soon as they are found will avoid interest, potential penalties, and endless hassle from HMRC.  

6. Recover VAT incurred elsewhere in the EU

You may be able to claim EU VAT via HMRC’s online portal under the EC 8th Directive.

7. Need a car?  You could save VAT by leasing

Unless there would be purely business use (e.g., a taxi, hire car, or pool car), which would allow full VAT recovery, the VAT on the purchase of a car is irrecoverable just by the car’s being ‘available’ for private use. Consider leasing rather than buying, as 50% of VAT on the lease charge is recoverable, as is 100% of roadside maintenance if it is split out on the invoice. 

8. VAT on entertainment costs

The VAT on entertaining clients, potential clients, and non-employees is not recoverable (unless a reasonable charge is made), but the cost of staff entertainment will be recoverable if incurred for the ultimate benefit of the business (e.g., a team away-day).

These tips were provided by Steve Allen of VAT Advisers Ltd.