VAT accountant

Our VAT Guide

What Is Value Added Tax?

Value Added Tax (VAT) is a consumption tax placed on a product whenever value is added at each stage of the supply chain, from production to the point of sale. The end consumer ultimately bears the cost, but businesses at each stage of the process are responsible for managing and remitting the correct amount to the government.

• For sole traders: You are required to register for VAT if your turnover exceeds the current VAT threshold, which may vary over time. Upon registration, you collect VAT on behalf of HM Revenue and Customs (HMRC) and submit VAT returns usually every quarter.

The Importance of Accurate VAT Accounting

Accurate VAT accounting is pivotal for several reasons:

• Compliance: Ensuring that the VAT you collect from customers is accurately calculated, reported, and paid to HMRC is essential. Failure to do so can result in penalties.
• Cash flow: Incorrect or late VAT returns can adversely affect your business’s cash flow, a situation we aim to avoid. Being precise with VAT accounting helps maintain a healthy financial state for your business.
• Financial Analysis: Accurate records of VAT give us insights into the financial performance of the business and inform our decision-making process, particularly for predicting future cash flow needs.

VAT Registration Process

When to Register for VAT

If your business’s taxable turnover exceeds the VAT threshold of £85,000 within any 12-month period, we are required to register for VAT. It’s important to keep a close eye on our turnover figures, as exceeding the threshold necessitates prompt registration. We can also opt to register for VAT voluntarily even if our turnover is below this number, a strategy that might benefit our business in certain circumstances.

Steps to Register Your Business

To register our business for VAT, we follow a structured process:

• Determine Eligibility: First, we confirm that our turnover has exceeded the current VAT threshold over the past 12 months or that we have valid reasons to register voluntarily.
• Gather Necessary Information: Before starting the application, we ensure we have all necessary information on hand. This includes our business’s turnover, bank details, and—if applicable—our unique taxpayer reference (UTR) number.
• Choose VAT Accounting Scheme: There are several VAT accounting schemes available. We select the one that best fits our business model. The standard, flat rate, and annual accounting schemes are a few examples.
• Complete VAT Registration: We complete our VAT registration through HMRC’s online service. Alternatively, in specific circumstances where online registration is not possible, we use the VAT1 form.
• Receive VAT Registration Certificate: Once our registration is approved, HMRC will provide us with a VAT registration certificate. This document includes our VAT number, the date we’ll need to submit our first VAT Return and payment, and details of our ‘effective date of registration’.

By carefully following these steps and maintaining accurate records, we ensure our business complies with UK VAT regulations.

Preparing and Filing VAT Returns

In our practice, we emphasise the importance of detailed record keeping and adherence to deadlines for VAT returns. We advocate the efficiency of online submission as the standard method for VAT compliance.

Record Keeping for VAT

Proper record keeping is vital for accurate VAT returns. We ensure that all invoices and expenses related to VAT are meticulously recorded. This includes retaining all sales and purchase invoices, receipts, and proof of any imports or exports. Our detailed approach provides a solid foundation for correct VAT calculations and compliance.

VAT Return Deadlines

VAT return deadlines are crucial, and we ensure our clients meet these dates promptly. Typically, VAT returns are due one month and seven days after the end of the accounting period. Staying ahead of these deadlines helps avoid penalties and maintains a good standing with the HMRC.

Online Submission of VAT Returns

Submitting VAT returns online is mandatory under the Making Tax Digital initiative. We handle the online submission of VAT returns through authorised accounting software that interacts seamlessly with HMRC systems. The benefits include:

• Accuracy: Automated calculations reduce human error.
• Efficiency: Saves time and resources, allowing for quicker processing.
• Security: Secure digital records meet HMRC requirements and help in maintaining robust data privacy practices.

Managing VAT Payments and Refunds

Handling VAT efficiently helps to maintain a healthy cash flow within a business. We focus on optimising both the payments you owe HMRC and the refunds you’re entitled to receive.

Calculating Output VAT

Output VAT is the tax a business charges on its sales of goods and services. To calculate output VAT correctly, the business should apply the current standard rate of 20% to the taxable supply. If your annual taxable income exceeds £85,000, it’s compulsory for us to register for VAT. It is also important for us to ensure that all invoices issued include the correct amount of VAT. For example:

• Invoice Value: £1,000
• Output VAT at 20%: £200
• Total Invoice to Customer Including VAT: £1,200

Claiming VAT on Expenses

Our entitlement to claim back VAT on business-related expenses can reduce the overall cost of purchases. When processing these claims, we ensure that each expense claim meets HMRC’s deductibility criteria.

Eligible expenses must be exclusively for business use and VAT receipts must be kept as evidence for HMRC.

Receiving VAT Refunds from HMRC

If the input VAT—a tax paid on your business purchases—exceeds the output VAT within a given VAT period, you will be owed a VAT refund from HMRC. The process involves:

• Preparing and submitting accurate VAT returns, usually each quarter.
• Ensuring timely submission to avoid delays in refunds.
• Following up with HMRC if necessary, to understand the status of our refund.

This is where systematic records of all your sales and purchases are important, as HMRC may require evidence when processing our refund.

By staying informed about VAT payment and reclaim processes, we maintain compliance with HMRC regulations and support our business’s financial stability.

VAT Advice and Consultation

We understand that managing Value Added Tax (VAT) can be complex and time-consuming. With the right VAT accountant on board and comprehensive planning and advice services, businesses in Newcastle can navigate VAT regulations effectively and confidently.

Hiring a VAT Accountant

A competent VAT accountant is pivotal for ensuring that all VAT obligations are met, and liabilities are minimised. We are experienced accountants to assist in the accurate filing of VAT returns, offering insights into how VAT affects your specific business operations. Whether it’s a new venture or continuous corporate finance, a VAT accountant can guide you through each step from registering for VAT to dealing with disputes with HM Revenue & Customs (HMRC). As VAT accountants in Newcastle we can help both locally and nationally.

Avoiding Common VAT Mistakes

Penalties for VAT Non-Compliance

HM Revenue and Customs (HMRC) enforce strict rules for VAT returns and payments. Failure to comply can result in substantial penalties. These penalties are based on the behaviour causing the discrepancy and how much tax is owed. Should we make an error, disclosing it to HMRC voluntarily can sometimes lead to reduced penalties. Staying informed about VAT changes that might affect your business and maintaining accurate records are great ways to keep on top of this.

Frequent Errors in VAT Accounting

• Incorrect figures: A common error involves entering incorrect figures on VAT returns. Always double-check calculations and the amounts entered.
• Late registration: You are required to register for VAT if your taxable turnover exceeds the threshold. Delaying registration can result in retroactive VAT charges and penalties.
• Inadequate records: You must ensure that all invoices and receipts are kept to substantiate our VAT returns.

Digital Tools for VAT Accounting

We emphasise the importance of utilising digital solutions for managing VAT affairs. Digital tools can simplify the VAT accounting process, ensuring compliance with HMRC’s Making Tax Digital (MTD) regulations. Online accounting software often features:

• Automatic calculations of VAT liabilities
• Digital record-keeping, reducing the potential for errors
• Direct submission capabilities for VAT returns

HMRC Support Services for VAT

HMRC provides a range of support services to assist businesses with VAT. This includes:

• Online guides with detailed content on VAT registration, filing, and payments
• Webinars and videos, offering step-by-step instructions on various VAT procedures

For complex VAT matters, we recommend consulting HMRC’s specialist teams or using the VAT helpline for tailored advice.