Avoid making mistakes for VAT

Avoid making mistakes for VAT
VAT is probably the most well known tax; everybody has been paying it from the first time you spent your pocket money at the tuck shop, to your latest purchase. VAT on consumer sales is easily comprehendible with a flat-rate applied to (most) goods. However, on the other side, in the murky world of business, VAT becomes a much more complicated issue, with 3 different rates of VAT to consider and different rules for imports, exports and charities. Here at Marshall Smalley we aim to straightforwardly explain VAT so you can stay on the right side of the tax man.

VAT is an indirect tax meaning that it is not gathered directly by the Government but is in fact the business’s duty to collect the tax and then pass it onto the Government. VAT is the Government’s third largest source of revenue in this country, so as you could expect there are strict regulations that businesses have to adhere to and severe penalties if they don’t.

·      Businesses have to pay VAT if they provide taxable goods and services to people and their taxable turnover is over £82,000.

·      Businesses must pass on the VAT they have charged for any goods and services for which VAT is applicable to the HMRC.

·      Businesses can offset the VAT they have received from selling goods and services with VAT costs they incurred from buying goods and services from other companies.

·      It is good practice to fill your VAT Returns ahead of time so you are not forced to rush it, which can lead to mistakes. You can check when your VAT returns are due by logging into your VAT online account. You should always be aware of when your VAT returns are due, as if you fail to send it in on time you may be fined.

VAT registered businesses must fill in a VAT Return every three months. This includes total sales and purchases, plus how much VAT you’ve charged and the amount of VAT you’ve paid. Even if you have no VAT to pay to the HMRC you must still fill in the form. If for some reason you do not have exact figures of your sales you can ask the HMRC for permission to use estimated figures.

It is vital to keep good financial records, this makes filling in a VAT return a much easier process and also makes good business sense as it allows you to keep track of where you’re spending and receiving money. The most common mistakes businesses make for their VAT Returns stem from inaccurate records.

There are three different rates of VAT, it is important that your business knows these and charges the correct VAT rate. Here is a table detailing the different rates of VAT for some products.

For a more extensive list you can visit this website.


If you are having difficulty working out the correct VAT to charge, this VAT calculator could come in useful.

It is important to know what your VAT bill is and set aside that money. Many businesses have got into trouble by spending the VAT they’ve received and having no way to pay it to the HMRC when the time comes.

A common mistake small businesses make is when receiving a part exchange only accounting for the VAT on the money. VAT should be accounted for the full price of the product sold, even if a customer doesn’t pay in cash.

If you do not charge your customer VAT you still owe the government the VAT for what it should have cost and this will now have to come out of your pocket.

The golden rules to prevent your business making mistakes with VAT is accurate record keeping and being aware when your VAT is due

The Flat Rate scheme is a great way for small businesses to avoid complicated VAT bills. The scheme, as the name suggests, means your business is charged a flat rate on their turnover once a year. This means you don’t have to calculate the VAT on each individual sale and purchase therefore removing a lot of time-consuming red tape.

Furthermore there are different sets of rules for imports, exports and charities. If you are exporting to an E.U country you do not have to pay VAT on the product. This also applies to exports to most other countries but you have to keep proof of sales and add it to your VAT Return. If you are importing goods you usually have to pay VAT on the product in this country in what is known as an Acquisition Tax. If your business is a charity you may qualify for VAT relief. We know VAT can be complicated, especially for new businesses, which is why we are always happy to answer any questions.

If you need any further information on VAT or want advice on whether the Flat Rate Scheme is right for your business email us at This email address is being protected from spambots. You need JavaScript enabled to view it. or ring us on 0115 956 9452.

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