The VAT challenge - are you winning?

If you're starting or running a small business, engaging a professional accountant is simply good sense. It gives you peace of mind that your accounts are in order and that there will be no nasty surprises when it's time to pay your taxes.

If you're VAT registered, that makes another hoop to jump through and, if you're new to business, VAT returns can look complicated. What is a VATable supply, what isn't and how do you offset VAT in against VAT out? And what on earth is 'reverse-charged VAT'?

Nobody expects someone new to business to know the law regarding keeping their accounts in order - and that's why an accountant or bookkeeper is not just a 'nice-to-have', but a real asset.

The VAT pit

If you've never had to do VAT returns before then you may be unaware of how it works - and the huge pit you can fall into, without knowing.

This is how it works:

You submit your VAT return at the end of each quarter - and pay what's due on time. You're winning!

OR

You forget to submit your VAT return. HMRC will send you a yellow assessment of what you owe.

You pay what's on the assessment - regardless of any calculations you might have done (after all HMRC know best, don't they?)

Bingo! You don't get any penalties as you've paid what they said you owe.

But are you winning?

NO!

HMRC have nothing to base their assessment on - so, if they're way out and you actually owe more than they've assessed, your penalties have not been wiped out. Instead, they are in that big pit waiting to leap up and bite you.

Penalties are actually a surcharge on what's due, so if you're short-paying, there's potentially a hidden build-up of penalties and interest.

The challenge is that as long as you pay the assessed amounts, HMRC's system doesn't chase you. But that doesn't mean you don't still owe the outstanding amounts. Even though there are no reminders or warnings - that debt AND the penalties are filling up your VAT pit!

You can keep avoiding it for quite some time - but that just means that the numbers get bigger.

How complicated is VAT really?

For some people it's pretty straightforward, but some industries have far more complex calculations. For instance, retail, hospitality and construction have different rates on different things (check out this blog about VAT on food).

Struggling through a VAT return if numbers aren't your 'thing' is going to eat up time that you could be investing in growing your business. Engaging an accountant will take the load off and ensure you are only paying the VAT you owe - and avoiding nasty shocks in the future.