As I’ve said many times before, VAT can be the most confusing tax. Now there are a lot of common mistakes that are made with VAT returns, so follow my video or read below, and I’ll explain all the mistakes that are made by small business owners like you.
- Entering the wrong VAT figures
This is easily done because we’re human, and we are not perfect at all times. One of the biggest mistakes made on VAT returns is inputting the wrong figures. So when doing it, have you got someone competent to put in your VAT information?
So make sure you reduce the number of mistakes to as little as possible. - Reclaiming VAT where you’re not meant to
The big one: entertaining!
Entertaining can be a valid business expense when you’re taking out your clients, but you’re not allowed to claim the VAT back on it. So make sure that you’re not claiming back VAT on these expenses.
Another common one is VAT on travel; train tickets don’t have VAT. But I’ve seen over the years these claimed a lot.
Another one that that’s easy to fall into as well is petrol. You can claim on certain instances through your VAT on petrol, but you need to make sure that it’s going down as a benefit in kind, if that’s relevant, and you’re adding a scale charge to it. A lot of businesses don’t claim the VAT back on their petrol. So make sure you don’t fall into this trap for you. - Annual staff event
As long as the criteria are met, you can claim the VAT back on an annual staff event; you need to make sure that these are the right numbers. It’s quite common for business owners not to claim VAT on their annual staff and team events. These opportunities are great because it also gets your team together, and if you are allowed to claim back the VAT, who doesn’t like claiming back VAT legitimately? - Claiming back VAT without invoices
If you haven’t got the invoice to support your VAT claim, you cannot claim it. So, make sure that you are keeping all of your invoices, and you are not burning VAT and letting money slip through your fingers. Make sure that you’ve got the habits in place where you’re keeping all of your VAT receipts. This allows you to claim back all your VAT.
One of the biggest burdens of small businesses is that they’re not keeping all their invoices and not claiming back as much VAT as they could. - Claiming VAT on late VAT returns and payments
These are definitely not our clients, but some people claim VAT on late VAT returns and payments. On any penalty where you’ve broken the law, you do not get the tax relief and would certainly not get the VAT.
If you’re late paying your VAT return and there’s interest, interest again is not vatable.
So, under no circumstances will you have any VAT that you claim back. Don’t fall into this trap for your business. - Bad debt relief
Another problem is claiming bad debt relief too quickly on your sales invoices. So, if your business is currently on invoice accounting, you must leave at a specific amount of time, which is six months before you can get VAT relief on any potential bad debts.
This is not going to be relevant if you’re a cash accounting business, which are slightly smaller businesses, because you only ever pay over the VAT when you physically receive it yourself. So if a customer is about to become a bad debt, and you are in the cash accounting scheme, this is not going to be relevant to you. - Not charging VAT
Another mistake business owners make is not charging VAT on standard business transactions. These could be things like you’re making some cash sales, or you’re selling assets, and you’re VAT registered. So make sure every type of income you’re receiving into your business has been quantified exactly whether VAT should be charged on that transaction. I’ve seen loads where these can just go missing completely.
What to do if you have made a mistake?
If you’ve made any of these mistakes and you realise that you made an error, you need to work out first how much the error is. If the amount is more than £10,000, you have to do another form to highlight that you’re making an adjustment of over £10,000.
If the mistake is less than £10,000, or between £10,000 and £50,000 but less than 1% of the total value of your sales, you can correct this on the next VAT return and pay over the exact amount.
I hope you find this article informative, and if there are any questions or you’d like to talk to us further about our services, jump on a discovery call with me.
