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Legal Ways to Reduce VAT

Every business aims to be as tax efficient as possible while staying all legal. These small margins can make huge profits and strengthen your cash flow. VAT is tax customers pay while they avail of your service or products. 

In return, Businesses VAT to the HMRC. However, there are some legitimate ways, various schemes and rules under which you can save some money. So, dive in here as the article has rounded up some best legal ways to reduce VAT.

1. Manage the Cash Flow Smartly

It would be best to manage your cash flow smartly as a budding or a well-formed business completely. For example, stretching payment terms will cost you bucks which is not good for your business. Instead, adopting an intelligent system that automatically identifies the bad debts which are more than six months old is good. 

Then, you can claim back the VAT element of the unpaid amount and only pay HMRC when the debt is paid. Many businesses solve the bad debt issue annually, and you waste the relief you would have got earlier. 

However, if your turnover is below 1.35 M, you can use cash accounting and get automatic bad debt relief without waiting six months. So, to avoid all this hassle, smart VAT return services are important. They will identify all schemes and bad debts and take timely actions to save every penny.

2. Reclaim VAT on Business Expenditures

If you’re not showing legitimate proof of business expenditure in your VAT return, you may lose many bucks. On the other hand, you can reclaim the products you bought for a business like a machinery and certain equipment. 

Also, if you have a car on the lease, you can reclaim 50% back on fuels and their cost. Also, celebrations in business and certain recreational activities have some relief. The only tip is to keep records of mileage, fuel bills, and important documents.

3. Choose the Right VAT Scheme

You can stop surprise VAT bills by implementing the right VAT scheme at an eligible time. Unfortunately, businesses often use the schemes post expiry and cling to one scheme. It will welcome great heavy VAT returns. Some of the schemes are:

  • Flat Rate Scheme

It’s especially for small businesses which make less than £85000 annually. In this, there’s a fixed rate VAT payment. You get a reduction of 1% in your first year. After that, you have to re-register the scheme till you reach the above threshold turnover. Some businesses fail to avail of this offer and use it post expiry. It results in a loss of money.

  • Cash Accounting Scheme

You can account for VAT on your sales on the payments you receive in the scheme. You can leave the tax invoices you issue. However, if you decide to use the scheme, you can only reclaim the VAT incurred on your investments (input tax) once you pay your supplier

Under the standard method of online accounting for VAT, you can reclaim VAT on assets you make as soon as you obtain a VAT invoice, even if you have not paid your supplier.

  • VAT Annual Accounting Scheme

It is a unique scheme where you make advance payments toward your VAT bill. You can submit the VAT return once a year rather than paying it every three months. The amount is based on your last return. If you have overpaid the VAT return by chance, you can reclaim your refund.

Note: It’s not useful for businesses who make multiple reclaims as you can only reclaim and get a refund once a year.

So, knowledge of these three and all other VAT schemes is very important to save your money. You can choose one for you as the scheme is set according to different styles of Businesses. 

4. Save Additional VAT While Expanding Your Business

You may lose money on additional VAT while growing your business on the continent and the rest of the world. This is because the VAT rules change and welcome lots of penalties while providing services globally. Keep in mind that EC Sales Lists are needed when dealing goods or services to EU clients, and Intrastats may demand high values of goods. 

Penalties can be charged for negligence to file these additional returns. So always review the validity of an overseas customer’s VAT number and keep a copy of the document. Lastly, you must store shipping details to support the zero-rating of overseas articles.

5. Manage the Important Information

Any businesses lose the money by paying VAT on things they could have reclaimed. So, bookmarking and keeping records is necessary. Always keep bills of fuel, machinery, home office costs, setting up prices, etc. 

The accounts can come in very handy and help you save money, increasing your overall turnover. But unfortunately, these tax deductions are often overlooked in the hassle. So, having a skilled VAT return service that manages all your bills is necessary. They provide your valuable feedback, update the terms and give the best advice to save money. So, stay all legal, save the money and focus on your business by availing of such services.

6. Creating VAT Groups may Make Your Return Money Efficient

Many businesses set up joint ventures with other budding companies. While forming VAT groups, one company becomes a parent company. The parent company pays VAT for both companies. So, the VAT process is simplified, and it’s very money efficient. In addition, you can reclaim VAT on multiple things while filing VAT returns jointly.

7. You can Claim Pre Registration VAT

When you finally register for VAT, you can claim for services you got before registering for the VAT. Many businesses do not know this thing and pay more VAT. You can Claim Pre-registration VAT on four years of goods you still have or six months of services. You can save the additional VAT and save lots of funds. Knowing these little terms and conditions is very crucial.

Bonus Tips

Irrespective of any business style, always and always manage your finances and accounts beforehand! Always keep a record of everything and hire a good team to help you with taxes. Taxes are necessary, but you can stay all legal and still save money. 

Read also Costly & Common VAT Mistakes and How to Avoid Them

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