Common VAT mistakes and how to avoid them

Lost in the VAT maze? We explain how to avoid the most common costly mistakes.

Need help with VAT?

We’ve helped many businesses find their way through the VAT maze. In many cases, our support meant HMRC waived penalties entirely.

Whether you’re paying too much, missing out on reclaims, or worried about fines, we can help. A quick VAT review could save you thousands.

Common VAT mistakes and how to avoid them

There are several mistakes that can be costly to your business, which this series of blogs will discuss, one by one. In this first blog, I’ll explain how to avoid common mistakes with your VAT. As you’re no doubt aware, VAT can be a maze, with wrong turns that leave businesses losing thousands, either paying too much or too little (incurring penalties from HMRC), while others miss out on valuable reliefs.

Getting VAT right means more money stays in your business, not HMRC’s pocket. Here’s how to avoid the most common (and costly) VAT mistakes.

Failing to legitimately claim VAT

Plenty of businesses forget to reclaim the VAT they’re entitled to, handing free cash to HMRC. A commonly missed VAT reclaim is for tools and equipment. If you’ve bought something for the business, you can usually claim back the VAT.

The same is true for repairs and maintenance such as servicing company vehicles or paying for a cleaner. You can deduct the VAT from many such services.

In addition, you can claim VAT on fuel and travel, but only if it’s for business use. Make sure you use the right method for personal mileage too.

Remember, all claims add up, no matter how small, potentially adding up to thousands in missed claims.

Reclaiming VAT when you shouldn’t

On the other hand, some business owners mistakenly claim VAT on things you’re not allowed to. HMRC doesn’t go easy, even on honest mistakes. Common errors include client lunches and hospitality. Although these are business expenses, you can’t claim VAT on entertainment.

Another area which catches businesses out is the VAT Margin Scheme. Goods bought under this scheme require different VAT rules.

In addition, some sales, such as exports, may be zero-rated or exempt so your VAT claims will need adjusting.

If you get it wrong, HMRC can hit you with penalties, interest or both.

Missing the VAT registration threshold

If you wait so long to register for VAT that you accidentally go over the threshold, HMRC won’t just backdate the VAT, they’ll also issue you with a fine.

The current VAT threshold is £90,000 in turnover over any rolling 12-month period (not just by tax year). Lots of businesses cross this without realising.

Late filing

You will automatically receive a penalty for a late VAT return. You should always submit the return, even if you can’t pay, as it’s better to file and sort the payment later than miss both.

More practical advice

For more in-depth advice about VAT and other costly mistakes that businesses make, download our free guide:

Look out for our next blog on how a good professional adviser can save you serious money.

If you need advice now on VAT or any other tax or business matter, call us on 01603 812131 or email enquire@swintonaccountants.co.uk