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been up to date with their VAT returns . If sales in the last 12 months go over £ 1,600k then they must leave the scheme to move to the accrual scheme at the end of the next quarter .
The business becomes liable to pay VAT when they receive cash from customers and become able to reclaim VAT when they make a payment to suppliers as opposed to when invoices are raised and received .
This doesn ’ t work well for businesses that normally have a VAT reclaim , are usually paid as soon as they raise an invoice or have van leases .
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Secret 5 : Know how to manage your VAT status
As we saw earlier , if you mainly work with consumers , there is a competitive advantage to not being VAT registered while if you work for other businesses you may want to voluntarily register for VAT .
If you are getting close to the VAT threshold , one way to keep that at bay is to get customers to pay directly for materials . Remember , if you buy a boiler and the cost is passed on to the end customer , it forms part of your sales whether a mark-up is added or not . There is a way for you to buy materials and not include them on your VAT return – disbursements – but this is quite complicated , no markup is allowed , and you have to precisely follow the rules . So , we won ’ t cover it here .
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get away with not having the gas safety certificate business VAT registered , provided it had annual sales less than the VAT registration limit of £ 85,000 .
If you think that taking risks with not registering and not charging VAT is worth it , talk to Uber . They are facing an HMRC back VAT tax bill that could top £ 1,500,000,000 . And there ’ s no chance to recover this from their customers . Don ’ t think that something similar can ’ t happen to you albeit on a much smaller scale .
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Secret 4 : Choose the correct VAT scheme
The normal VAT scheme is where a business submits their VAT return once every three months based on sales and costs invoiced in that three-month period . These are included based on the date they were raised whether or not they have been paid . This is known as the accrual scheme and is the default .
The alternatives are the “ Cash accounting ” and “ Flat rate ” schemes .
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Flat rate scheme
The flat rate scheme only applies where sales are less than £ 150k per annum and must be left once there are “ reasonable grounds for believing ” that sales will go above £ 230k in the next year .
The flat rate scheme means that the business charges a flat rate of VAT on all sales without worrying about VAT on purchases or expenses . The flat rate is set by HMRC for each industry type and in the first year of VAT registration the rate is 1 % less . The flat rate total amount of VAT is simply
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paid to HMRC . This can be combined with cash accounting described below i . e . pay based on what is received .
The flat rate scheme shouldn ’ t be used when selling to VAT registered entities where a VAT invoice must be supplied . So if a business does any commercial work the scheme probably isn ’ t worth it .
Cash accounting scheme The cash accounting scheme can be joined if a business ’ s sales will be £ 1,350k or less in the next year and they have always
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Professional advice
VAT is complicated , particularly for the trade industry and there are some aspects like annual VAT reporting which haven ’ t even been mentioned .
I am not an accountant so I have no axe to grind . But really , consulting an accountant usually saves much more than it costs . It ’ s definitely worth doing this at least once to set you off on the right track .
About the author Benjamin Dyer is CEO and co-founder of Powered Now . Powered Now ’ s mobile app aims to take the pain out of paperwork for individual installers and small companies , as well as other trade businesses .
www . powerednow . com
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