Neil Jennings, of business advisers Mazars, outlines nine potential approaches to reducing your organisation’s VAT burden.
1 Subject to specific conditions, some businesses can issue ‘payment requests’ rather than VAT invoices, so the VAT due can be delayed until payment is received. This applies to those with contracts to supply continuous services over a long period. Organisations in the construction industry should be using this arrangement.
2 VAT bad debt relief can be claimed where customers have failed to pay on time and their debts have remained outstanding for six months. Businesses can reclaim the associated payment made to HMRC for immediate VAT recovery.
3 Small businesses with a turnover of less than £1.35 million should consider the ‘cash accounting’ scheme which enables them to avoid paying VAT until their organisation has been paid.
4 Businesses that are not on the cash accounting scheme should accrue VAT on the purchase invoices which have been received, but are not yet posted on a purchase ledger. This helps maximise input VAT recovery but requires care to avoid double accounting, by making the appropriate VAT adjustment the following quarter.
5 Small businesses beneath the £1.35 million threshold could be eligible for the ‘annual accounting’ scheme. This provides an opportunity to reduce administration costs as it only requires one return a year, and payment arrangements can be monthly or quarterly.
6 Very small businesses with an annual turnover less than £185,000 could be entitled to use the ‘flat-rate scheme’. This reduces administration and simplifies calculations by applying a single percentage to the turnover for the period to calculate the VAT due. In our experience this has been particularly beneficial to certain business sectors.
7 Businesses can delay VAT payments by up to seven days by paying their VAT liability by credit transfer.
8 Larger businesses that make annual VAT payments exceeding £2 million currently make monthly payments on account. Their position should be monitored to ensure that these payments, which are based on last year’s trading, are not too high compared to current trading levels. Businesses can elect to submit monthly returns and payments or evenapply to leave the scheme.
9 Businesses that are unable to recover all the VAT from VAT exempt activities, which are part of their trading operation should ask some critical questions. They need to look at the method used to determine recoverable VAT, to ensure that it is the most appropriate and does not lead to an unfair recovery rate.