Common VAT Errors And How To Avoid Them

All businesses, whether they be limited companies, sole traders, limited liability partnerships or normal partnerships have to be VAT registered if they make taxable supplies over £83,000 ...

Any business should charge Value Added Tax (VAT) at the standard rate (currently 20%) unless it is clear that the transaction is either liable to the reduced rate or is zero-rated. Some businesses may have a turnover in excess of £85,000, but their services fall outside the scope of VAT.

One of the potential pitfalls of compiling VAT returns is understanding what input VAT can be claimed against your taxable supplies. Not everything has VAT applied to it.

Businesses should only reclaim VAT if they are in possession of a valid VAT invoice or receipt showing a VAT registration number and the breakdown of the VAT element.

Here are some examples of some common errors:

Reclaiming VAT when there is no purchase invoice.
VAT incorrectly reclaimed on travel costs such as air fares, train tickets and taxis. There is no VAT charged on these services.
Reclaiming VAT on "on street" meter parking. While large carparks such as NCP have VAT applied, "on street" meters don't.
Not applying the Fuel Scale Charge where a business is reclaiming input VAT on fuel. The fuel scale charge is a charge to adjust the VAT reclaimed on fuel for private use. HMRC's stance is that there has to be some element of private use involved is so far as travelling from home to your place of work doesn't constitute business use.
Incorrectly claiming VAT on entertaining clients. No VAT is recoverable on business entertainment.
Not declaring VAT on deposits or payments received in advance. If you received payments in advance from your customers before you raise the invoice, the tax point date for VAT purposes is the date the monies are received.
VAT incorrectly claimed on insurance and business rates. There is no VAT charged on insurance and rates.
Reclaiming VAT without accounting for private use such as private telephone calls and home telephone lines.
Not accounting for VAT when a business asset is sold, such as a vehicle, computer equipment or furniture. When an asset is sold, VAT should be applied to the sale.
Not applying the 50% VAT input restriction on company car leases.

It should be noted that you can correct errors made on your next VAT return as long as the VAT element of the error is less than £10,000. You can also adjust your next VAT return if your error amount is up to 1% of your 'box 6' figure (up to a maximum of £50,000).

If you're struggling with your VAT returns then why not get Essendon to do them for you? Call us on 01908 774320 or click here to ping over an email and let's see how we can help you.

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More about Matthew Brown ...

Matthew trained with Roger during the Hartwell & Co days and has followed Roger through his career to Essendon Accounts and Tax. Matthew prides himself on understanding clients and meeting their needs and has a great deal of experience with dealing with a variety of different businesses.

When not in the office, Matthew can sometimes be found on the golf course working on his swing or improving his cooking skills in the kitchen.

Common VAT Errors And How To Avoid Them

It's a complicated area of taxation ...