How To Get Your VAT Right?
Over the years I’ve been working as an accountant, when I’ve spoken to clients, they are genuinely concerned about getting caught by the taxman. And there are loads of business owners that have a genuine fear of getting inspected and getting into trouble.
So this article is all about this, these are the tips and tricks not to get caught out by the tax man.
Watch my video or read below.
Don’t get caught out by VAT registration
In one of my videos, VAT registration, I spoke about the rules that you need to follow when you have to register for VAT.
I’ve come across this in the past and I will come across it again when someone walks into my office: “I have just realised I should have registered a while ago!”
The downside of this is once you’ve gone over the VAT registration limit, you have to VAT register, there is nothing worse than going back in time and realizing I should have registered 18 months ago. Because that will mean you have to go back to all your customers being recharged with VAT, or you are going to have to pay this out of your own profits.
What a nasty surprise that could be when you’re running your business. Make sure that you monitor your income on a regular basis, ideally monthly, if not quarterly, to check that you’re not exceeding the VAT threshold. Because this is a common problem with small businesses. Make sure you don’t fall into this trap yourself.
Registering late
Following on from this is registering late if you register late for VAT, you have to make up all of the VAT payments. But on the other side, there could be a penalty. If HMRC determined that this was fraudulent, you will have to pay the additional VAT and penalties. So, what worse feeling could you have than not only going back and having to pay 6 months, 12 months, and 18 months VAT, in the past, and a penalty on top? This could really damage a lot of small businesses.
Another one for registering late could be registering your business, you could be self-employed, or you may want to be a limited company. So if you’re self-employed, you have to register when you start trading, and if you haven’t, you have to go back. I’ve sat in front of clients in the past who have not registered for six years, and we’ve had to do six year’s worth of self-assessments to bring them up to date. This is a pain because they’ve got six year’s worth of tax to pay, as well as interest and penalties. What a waste of money!
And, if it would have been beneficial for any small business to register initially, as a limited company, you can’t go back in time and register a company, it’s just not possible. So make sure you are registering in time your business, and it’s the best structure.
Splitting your business
Can you split your business into two parts? A lot of the time it is gonna be no because splitting your business into different parts doesn’t make it separate businesses. There are some genuine cases where this works. But it has to be a clear definition clearly defined, clearly split for this system to work. Make sure you’re not falling foul into this artificial make-believe scenario where you’ve split a business for VAT, but it’s still the same business.
Penalties
I’m a massive fan of whether it’s accounts, VAT return or anything else, get it done, get it nailed and get on with your life. No one likes doing tax returns and accounts anyway, but they are valuable because you get to see a real scoreboard the result of your business, which I find truly inspiring. But the process can be a bit painful because we’ve got loads of things to do within our business. Make sure you are not messing around wasting money with penalties by doing everything last minute or saying “oh, well, I hope HMRC give me a deferral.” Get on with it and know exactly the tax that you’re going to pay well in advance. So if you haven’t put the tax aside plan for it. There’s nothing worse than having a bucket leaking profits out of your business through penalties. It is a bad habit to be in. If you’re in this position yourself, make sure you change soon because it’s a waste of money.
Additionally, if your business has got smaller, you may not need to stay registered for VAT. If your business has gone underneath the VAT threshold, which is now 85000, see if it’s advantageous for you to deregister for VAT. Make sure that you’re reviewing your business on a regular basis to see, if are you registered in exactly what you need to be for the time and stage you are at. How often do you review your business? Comment below, I’d love to know!
Planning
Always plan for your business, at a minimum annually buts ideally every six months, or even every quarter. What plans have you got in place for your business, hope is not a strategy, you need to have a clearly defined plan that gets you to exactly where you want to be. You have to stay focused and make sure everything is in line, and if you’ve got new business ventures that are going on, you’ve got an additional service line, is it structured in the best way it can possibly be, both for tax and VAT.
Make sure when you are running your business, you are sitting down with your accountant, advisor or business coach, making sure you’ve got the best plans possible for the information you have. The more you do that, and the more you focus, I normally find businesses that do this are lots more successful.
Prepare for your tax bill
The last one is preparing for your tax bill. And the best way to do this, again, I’m going to repeat myself is to get your accounts, VAT return whatever you need to do that calculation tax down early. Do not leave this right to the deadline.
The classic one is the 31st of January when the self-assessment deadline is. Most people after they’ve got through Christmas are skint because we’ve all overspent and their tax return is due on the 31st of January. So if you’re preparing your return on the 30 or 31st of January and you get that horror tax bill. You can do your self-assessment anytime before the summer holidays. This will allow you six months to prepare for any tax that you need to pay if you haven’t got it already saved with the planning. Don’t fret because you then still have another six months to get the money that you need to settle the liabilities.
If this video has helped you and you would like to talk about our services further, contact me here. Don’t worry if you’ve got any questions that I can help with, I’ll do my best to give you as much value as possible, and I promise there’ll be no pushy sales pitch.
