Karl Craig-West

VAT survival guide for the small business

As a VAT consultant, one of the things that never fails to amaze me is how little many business owners understand about VAT. Its not that I would expect a shopkeeper or the director of a family manufacturing company already working 12 hour days to be able to quote VAT legislation.

But I find it frightening that any business owner doesn’t at least understand how a tax that could cost him 17.5% of his turnover (not profit!) affects his own business. For most businesses, the quarterly VAT payment is the single highest payment made on a regular basis, so doesn’t it make sense to know what’s in it?

There is a wealth of advice about VAT and other taxes available, if you have the time and motivation to spend a few hours each week following the technical press. But most small business owners neither have the time or the inclination to do so and would take the view that you pay your accountants or tax advisers to do this for you. But it is still your responsibility to pay the correct amount of tax at the right time.

You can get free information and advice from HMRC, so there's little excuse for getting it wrong, even though their publications are often more difficult to read than the instructions for programming the video in Japanese.

The rules are complex, so to assist you I’ve come up with a survival guide for small businesses consisting of 5 easy to remember rules that should prevent you from falling into VAT trouble!

1. Understand VAT as it affects your day to day business from Day One.
2. Get your returns and payments in on time. It saves on penalties and hassle.
3. If you have problems with getting returns or payments in on time, speak with your local VAT office who may be able to help.
4. If in doubt, charge VAT, you can refund it later if appropriate. Otherwise it comes out of your profit.
5. Remember that VAT is a tax on transactions. Take advice if you are involved in anything out of the ordinary and especially on property transactions.

The other unwritten rule of survival is, of course, to keep a wary eye out for the VAT officer in case he wants to carry out a VAT inspection. It’s a bit like a visit to the dentist, one of those things you’d really rather doesn’t happen, but you’ll feel a lot better when its done!

Contributed by Marie Stein, VAT Consultant
Vist www.vatexchange.co.uk for free VAT support and tips.