Below are a few questions we are frequently asked about VAT. Read on to ensure you and your business remain VAT compliant.
If your VAT taxable turnover goes above £85,000 for the last 12 months, you should register for VAT (unless your sales can be treated as exempt or zero rated).
In some instances, it may be beneficial to register for VAT voluntarily.
This would be the case where all or most of the customers of the business are VAT registered (so they can reclaim the VAT on your sales invoices).
You would then be able to reclaim any VAT incurred on your business purchases and expenses.
There is additional admin involved in preparing and submitting VAT returns so this should be considered when looking at the pros and cons of voluntary VAT registration.
If you use the accrual scheme, VAT is payable on your sales invoices and VAT is claimable on purchase invoices based on when they are raised or received, regardless of whether they have been paid or not.
On the cash accounting scheme you pay VAT on your sales and claim VAT on your purchases based on the date customers pay the sales invoices and when you pay your supplier purchase invoices, not the date of the invoice.
Generally, we recommend using the cash accounting scheme where you give your customers credit, for example you issue your sales invoices with a due date in 30 days time.
This aids cashflow as you don’t have to pay the sales VAT across to HMRC until you have the money in the bank from the customer.
Your sales must be below £1.35 million to join the cash accounting scheme.
The business can claim VAT on the fuel portion of any business miles travelled by it’s employees.
To calculate the VAT claimable, HMRC’s advisory fuel rates are used, which estimates the amount of fuel used per mile based on the engine size of the vehicle used.
The VAT claimable is 1/6 of the amount of business miles travelled multiplied by the relevant fuel rate.
The advisory fuel rates are available here and are updated on a quarterly basis.
VAT incurred by the business on entertaining contacts is unfortunately blocked from being recovered.
Entertainment includes costs such as providing food and drink, accommodation and tickets to events like the theatre, concerts and sports matches.
VAT is claimable however on employee entertainment, such as staff parties, outings or team building days, as long as it is not solely provided to the directors of the business.
Trivial benefits are a tax efficient way to provide gifts to employees, for birthdays or special occasions for example.
Providing the gift cost you £50 or less (including VAT), isn’t a voucher and isn’t a reward for performance or in the employees contract, any VAT incurred can be claimed back.
So buying an employee (or director) that Yankee Candle or BrewDog advent calendar, may not ultimately cost you as much as you first thought!
When the business is VAT registered, it is likely that all sales invoices will be raised with VAT on them (subject to certain exemptions and reduced rates).
There will be certain purchases and expenses the business incurs that won’t however include VAT, meaning you could incur a loss in a quarter and still owe HMRC VAT.
Such expenses include wages, salaries and commissions, loan and bank interest, insurance costs and purchases from businesses that are not VAT registered.
You can’t claim VAT on the purchase of a company car unless it can be deemed to be a “pool car”. This would mean the car would have to be left at the company premises, not be allocated to a certain staff member, be available to all members of staff when required and not available for private use.
These rules are the same for electric vehicles too.
VAT can be claimed when buying company vans and certain other vehicles, like some “twin-cab” pickups.
If you lease a company car which isn’t a pool car, you can claim back 50% of the VAT on the lease payments.
You should keep the businesses VAT records, such as invoices, expenses and bank statements for six years in case HMRC ask to see them.
Paper copies and files don’t have to be kept, computer and digital records are fine.
Please contact us if we can be of any assistance or if you require any further explanation.