Common VAT mistakes and how to avoid them

Jan 29, 2024 | Business

VAT is definitely one of the most complex aspects of the UK tax system, so if you feel like you’re struggling with your responsibilities, just know that’s normal. That said, here are some of the most common VAT mistakes people tend to make and how you can avoid them.

Failing to register at the right time

Businesses are required to register to VAT when they have a yearly turnover above £85,000 or expect to have one that high in the next 30 days. You must also register (regardless of VAT taxable turnover) if all of the following are true:

  • you’re based outside the UK
  • your business is based outside the UK
  • you supply any goods or services to the UK (or expect to in the next 30 days).

If you don’t register on time, you may have to pay a penalty, so make sure to keep track of your turnover when you’re close to hitting the registration threshold. Regular and accurate bookkeeping will help with that, particularly hiring a bookkeeper or outsourcing the books to an accountant.

Entering the wrong figures

Most VAT mistakes are the result of entering inaccurate figures on form six which represents the ‘total value of sales and all other outputs excluding any VAT’. This is because the amount you enter depends on the VAT scheme you’re using.

For example, if you’re using the flat rate VAT scheme, the amount you enter should be the gross income you’ve applied the flat VAT percentage to. If you’re using the cash accounting or standard accounting scheme, though, you should include your income net of VAT.

Reclaiming VAT on fuel and cars

VAT on fuel purchased by business directors, partners and employees for business purposes can be reclaimed on a VAT return. However, one common VAT mistake is claiming for fuel used for personal use alongside fuel used for business travel, which often happens when a vehicle has dual business and personal use.

To avoid this mistake, make sure to keep detailed mileage to support a claim, which HMRC expects to see.

Reclaiming VAT on entertainment

Some people seem to think they can reclaim VAT on entertainment expenses for themselves, employees and potential clients. After all, these purchases seem like reasonable costs incurred for marketing or wider business purposes.

However, HMRC doesn’t see it like that, so be careful with the expenses you include on your VAT return.

Reclaiming import duty too early

Another common mistake is reclaiming VAT on the receipt of invoices from shipping invoices too early. While these invoices are valid, where claims are concerned they only account for the agent’s charges and not the import VAT.

You can only reclaim import VAT on receipt of an official import VAT certificate (C79) from HMRC, which you will usually receive around three weeks after the end of the month you received the goods in the UK. So, hold off on any claim until the C79 certificate proves you are the owner of the goods.

Tired of making common VAT mistakes?

If you want to reduce or even stop the number of VAT mistakes you make, make sure to get in touch with an accountant and ask them about their VAT services. They’ll only be happy to offer their services and prevent you from making any more common VAT mistakes.

Talk to us about our VAT services.

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