Small Business Bookkeeping Deadly Sin #6: Incorrectly Accounting For VATKelly
Value Added Tax (VAT) can cause small business owners trouble from time to time. It’s almost impossible to understand every detail involved with VAT, and often this can lead to costly mistakes.
Business owners are often confused about when they can reclaim VAT, how to create VAT compliant invoices, and about the rules that apply. Fortunately, you don’t need to know the answers yourself if you know where to get the correct information, and have the right accounting system in place.
Firstly, HMRC’s website is a great resource to refer to, and can answer many of your tricky questions, and of course your accountant can assist you as well.
Now bearing in mind that we do not provide tax advice and this is meant for general information only, here are also a few things you can do to make complying with VAT requirements as simple as possible.
1. Set Up a VAT Account
Discipline yourself to keep on top of VAT. It is a good idea to allocate a specific time in your week to update your accounting records, and to set aside the VAT you have collected so you can pay it to HMRC when it is due.
2. You Must Issue VAT Invoices
If you are registered for VAT, whenever you supply goods or services, you must give them a VAT invoice. VAT invoices must have certain information included on them in order for VAT to be reclaimed. The Cashflow Manager Gold bookkeeping program has standard invoice layouts designed to comply with VAT legislation so you can be sure that your invoices meet all the requirements. This will help you to avoid any confusion when you are trying to generate your invoices. Of course, you also need the correct information on VAT invoices you receive in order to claim the tax back.
3. You must submit a VAT return
If you are VAT registered, you will have to submit a VAT return at regular intervals – usually quarterly. Your accounting software can help you to do this. Each of Cashflow Manager’s columns has the tax type so VAT is calculated automatically. You can generate reports and lodge your VAT return online with HMRC with the click of a button.
4. Depending on your type of business you may be able to use a VAT scheme.
Check whether any of HMRC’s accounting schemes could make your life easier and suit your small business. There are several schemes that could help simplify your VAT such as the Flat Rate Scheme. If you do choose a different scheme, our support team be able to assist you with how to go about implementing it in your Cashflow Manager accounting system.
VAT can be complicated, but by following simple steps and implementing the simplest accounting software you can avoid committing this deadly sin.