VAT – Common queries and mistakes

Never a week goes by without a VAT question coming across our desks.

This is an area where we add value to our clients from the outset, helping them to identify errors and omissions and ensuring they are on the correct scheme or VAT quarters for their business and cash flow. VAT can be a tricky area to navigate, it can be complex, detailed and it can be easy for businesses to make honest mistakes.

As with most areas of tax there are often changes to the rules. As a result of the pandemic we have seen recent changes to VAT rates including those applied to Personal Protective Equipment (PPE) revised to zero rated and a 5% rate on certain supplies on the hospitality sector such as food and non alcoholic beverages sold for on premises consumption. There are currently three rates of VAT, standard (20%), reduced (5%) and zero (0%), some goods and services are exempt from VAT or outside the scope of the VAT system.

Common mistakes include:

  1. Poor record keeping – This can lead to a multitude of errors when records are not kept carefully. To meet the rules you cannot reclaim VAT without a valid purchase invoice, systems such as Dext (formerly ReceiptBank) or Hubdoc can be really useful here if you are using cloud software such as Xero or QuickBooks Online.
  2. Partial exemption rules not being applied correctly or at all, where a business makes both taxable and exempt supplies
  3. Failure to pay over VAT on deposits on receipt
  4. Not spotting the requirement to repay VAT previously claimed on unpaid purchase invoices older than 6 months
  5. Incorrect reporting of exempt ( for example finance charges ) and zero rated transactions (for example cakes and Jaffa cakes )
  6. Not registering for VAT in a timely manner when exceeding the turnover threshold of £85,000
  7. Transactions relating to land and property not being accounted for correctly
  8. VAT claimed incorrectly on business entertainment

A quarterly review of your figures can be extremely fruitful, especially in these challenging times. We can help with VAT reviews, bookkeeping and management reporting to make your business records better.

Please feel free to reach out to us to see how one of our VAT specialists can help you. You can call us on 01243 782 423 or head to our contact page and we will be in touch!

VAT Specialists - Lewis Brownlee