There are various ways a small business can account for VAT; are you using the right one for you?
The standard method is used by many and, put simply, you return all the VAT on your sales and purchases and either get a refund or make a payment for the difference – this is done either monthly or quarterly.
This method, however, could be costing some businesses time and money.
There are alternatives to this onerous system as outlined below.
Save time and money and make budgeting easier with the Annual Accounting Scheme.
Only one VAT return per year and nine monthly or three quarterly advance payments are made towards the total VAT due. A balancing payment is then made for any owing VAT.
The main benefit of the scheme are:
l Only one VAT return is submitted.
l You know what the interim payments are going to be to help plan your cash flow.
l The VAT return is submitted two months after the year end instead of the usual one month.
If you have customers who owe you money, take the cash flow advantage of the Cash Accounting Scheme.
With this scheme, businesses only account for VAT when a customer has paid an invoice, meaning you never again have to pay VAT on money you have not received.
Save time and possibly money with the Flat Rate Scheme.
A fixed rate of VAT will be paid to HMRC, which is based on a percentage of turnover. The percentage used is based upon your industry sector.
VAT cannot be claimed on expenses with the exception of capital assets whose VAT inclusive value is £2,000 or more.
The benefit of the scheme is that it reduces the amount of time a small business spends calculating its VAT.
During the first year that a business is VAT registered, the flat rate percentage is reduced by one per cent.
The Flat Rate Scheme can be used alongside the annual accounting scheme.
For advice on this and other challenges, speak to Jeff Hodson on 01205 310250 or email firstname.lastname@example.org.