Efficiently managing your VAT liabilities to improve cashflow - Mark Handscombe of Azets
VAT and indirect taxes can become cumbersome for businesses, with evolving rules and complexity. With a 20% rate, VAT significantly impacts cashflow, but there are strategies to optimise your VAT position and boost cashflow.
1. VAT Registration: Any UK business exceeding £85,000 in annual turnover must register for VAT. Registering early offers benefits such as being perceived as a credible organisation, reclaiming VAT on expenses before payment, and access to schemes like Cash Accounting (for turnovers up to £1.35 million).
2. VAT Returns: Switching from quarterly to monthly VAT returns can expedite repayments from HMRC. Ensure you have the resources to handle more frequent submissions.
3. VAT Accounting Schemes: HMRC offers various schemes to ease VAT payments for smaller businesses, including Standard VAT Accounting, Cash Accounting, Annual Accounting, and the Flat Rate Scheme, which simplifies administration for small businesses.
4. Sector-Specific Opportunities: Businesses in sectors like hotels, construction, finance, and retail can benefit from VAT opportunities related to their activities, including reclaims for cancellation charges, construction services, fund management fees, vouchers, and delivery charges.
5. Bad Debt Relief Claims: If payments remain unpaid for over 6 months, you can claim back VAT declared and paid on sales from HMRC, subject to specific conditions. Note that VAT recovered on unpaid purchases is also repayable to HMRC.
6. Annual Adjustments: Businesses in sectors with VAT-exempt income or non-business activities must perform VAT partial exemption and non-business calculations. Annual adjustments allow you to 'average' your recovery over 12 months, potentially resulting in additional repayments or payments to HMRC and efficiency savings.
7. Avoiding Late Payment Penalties: Introduce a direct debit arrangement with HMRC for timely VAT collection. Penalties are charged based on VAT owed at days 15 and 30, so consider partial payments if full payment isn't feasible.
8. OTS Reinstatement: Calls for the reinstatement of the Office of Tax Simplification (OTS) have been ongoing since its abolition in September 2022. An independent body like OTS could simplify tax procedures and reduce the paperwork burden businesses face.
In case of payment issues, our Banking & Finance specialists offer tax funding services to cover tax costs for up to 12 months, preserving cashflow, avoiding late payment charges, and ensuring peace of mind.
If you have questions or need assistance in managing VAT liabilities, contact Azets' VAT team or your Azets advisor.
Contact Mark Handscombe at email@example.com
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