Business owners rely on the professional advice they get from specialist experts to help them in a wide range of areas including marketing, legal, HR – and of course, accounts.
The quality of this support can have a direct impact on the success – or otherwise – of a business, so when we took on a new client recently, we were shocked to find that the advice they’d been given by their previous accountant regarding VAT was completely wrong.
The experience brought home to us the fact that worryingly, there are some accounting practices out there that simply don’t fully understand the basic rules around VAT.
In this particular instance, our client was told that the date they needed to register for VAT would be the end of the financial year in which their turnover exceeded the VAT threshold (currently £83k). In fact, for the purposes of VAT registration, turnover is NOT calculated from the start of one financial year to the start of the next, but on a ‘rolling’ 12 month basis. This means that a business must constantly take the turnover of the current month and add it to the previous 11 months, registering as soon as the VAT threshold is reached.
Unless finances are continuously monitored then, a business is in danger of inadvertently missing its trigger point for VAT registration, leading to VAT back payments, and running the risk of significant interest and penalties.
Is Your Business Risking a VAT Time Bomb?
It’s clear that even among some of our professional colleagues there is confusion about the rules around VAT. Had our client taken this advice as gospel rather than come to us, the financial consequences for them could have been very serious, so if you’re using a smaller, independent practice – how confident are you that they’re set up to advise and guide you correctly?
The government does not take VAT misdemeanours lightly. The onus is always on you as the business owner to collect the tax on behalf of HM Revenue, and for this reason, they will not hesitate to take action if you fail to abide by the rules.
If you only look at your financials in detail at the year end, it’s quite possible you may exceed the VAT threshold without even realising it – and being late in registering by more than 12 months will incur an automatic, non-negotiable fine – plus of course, all the back dated VAT which will be due, and which is likely to be extremely difficult (not to mention highly embarrassing) to recoup from your customers. Oh – and let’s not forget the interest which will have accrued on the overdue VAT!
In short, VAT can bite if it’s not handled correctly, and it’s your responsibility as the business owner to register for VAT the moment your turnover tips over the limit. Just to prove that they do have a heart, HMRC does allow a little wriggle room for those businesses that find themselves exceeding the limit earlier than they expected to – perhaps as a result of last minute, unanticipated revenue from a new client, or a project finishing early. Businesses in this situation are given 1 month’s grace to register.
While late registration always incurs interest charges, Inca have considerable experience in successfully helping businesses to mitigate penalties – especially when registration is late by less than 1 year.
Do you want clarification on your VAT position? If you are uncertain of how your business should be addressing VAT, when you should register – or perhaps even whether VAT applies to the services or products you are selling, call us now on 01235 868 888 and let’s arrange a review.
Remember, if you need to register for VAT, and you’ve not done so for any reason, it’s always best to take the initiative and approach HMRC first – before they make contact with you.
Get Our VAT Calculator
& Don’t Get Caught Out!
Only £49+ VAT to Non-Inca Clients!
At Inca, we provide all our clients with a FREE VAT calculator tool to enable them to monitor how close they are to the rolling 12 month VAT threshold.
The earlier you know you’re going to need to register for VAT, the better prepared you can be, and the less impact there will be on your business. Our calculator tracks your rolling turnover, flagging up a warning to let you know when you exceed the threshold so you have plenty of time to take the appropriate action.
Don’t leave it until it’s too late. To discuss your VAT situation, or to order your VAT calculator tool, call us now on 01235 868 888!
Book a place on a workshop
If you’re interested in booking a place on a workshop, or if you’d like more specific help and advice on preparing a budget for your business, give us a call and we will be very pleased to give you any assistance we can! Phone: 01235 868888 or Email: [email protected].
