UK’s VAT system is known for being most complicated. From small business owners to large scale enterprise owners, everyone gets affected because of the complexities in VAT rules. The situation turns worse as most business owners can’t even understand VAT returns and hence get into trouble by making mistakes pertaining to wrong payments which even lead to heavy consequences arriving in the form of penalty. Paying the wrong amount of VAT can also trigger VAT investigation which is complex process leading to costly results.
In order to avoid making such mistakes experts have set guidelines for businesses so that they get an understanding of the scenario and make exact payments before filing for VAT returns.
In the UK VAT was introduced during the year 1973. Ever since its advent all businesses which were VAT registered were responsible in supplying VATable goods. Earlier, it was referred to as Simple Tax where customers were charged 20% on the product they purchased followed by which the seller would calculate the amount of VAT he had previously paid to a supplier. The deducted figure which would remain after the calculations would further be paid to the HMRC. If you are a businessman with zero idea about VAT system imposed in the UK, contact a Practice accountant Oxford Circus.
There are three common VAT schemes helping businesses draw a calculation on their respective VAT accountability:
VAT cash accounting system: a businessman pays the VAT amount and reclaims the same as per what he has received or paid.
VAT standard: Under this scheme the seller pays the VAT irrespective of whether he has received the same from his customers. He will then reclaim VAT based on suppliers’ invoice, irrespective of whether he has paid the bill or not.
VAT Flat rate: the seller charges 20% standard VAT on customers and pays around 14% of VAT amount to the HMRC. In this case the seller will not be allowed to reclaim VAT unless otherwise it is based on equipment.
Common VAT return mistakes made by businessmen
A common and grave mistake businessmen make while filing for VAT reclaim is by entering incorrect figures. In order to avoid this mistake consider speaking to a Practice accountant Canary Wharf. When filling up the form businessmen frequently get confused as they enter the 6th criteria. If a businessman has applied for the Flat scheme he must enter a double check on the box referring to the Gross amount he earns. Meanwhile as per the Cash Accounting plan the amount here will refer to the net income.
This is a vital area of concern which the HMRC especially investigates on. A lot of businessmen are seen making the mistake as they forego the rule which is referred to as the “limited cost trader”. According to this newly launched norm, businessmen are expected to pay an increased percentage. They must essentially get the facts and figures corrected in order to ensure no VAT enquiry or penalty.
Generally businessmen are recommended of going through VAT schemes. The Fixed scheme allows small businesses to achieve a steady cash flow. However business owners tend to commit the mistake of not reviewing the scheme.
There are various other mistakes which a businessman dare not commit while paying the VAT amount.
The author is a professional Practice accountant in Oxford Circus offering valuable tips to those in need. The author has mentioned about some key points on VAT returns in some recent blogs.