6 Tips to Save on Your VAT Bill
Value Added Tax (VAT) is an inevitable part of business expenses, but with some strategic planning and smart practices, you can significantly reduce your VAT bill. Here are six tips to help you save on your VAT expenses:
1. Understand VAT thresholds and registration
Why it matters
Staying aware of the VAT registration threshold in your country is crucial. In many jurisdictions, you must register for VAT if your business turnover exceeds a certain amount, and across the EU the distance sales threshold is now set at €10,000 for all Member States. However, voluntary VAT registration can also be beneficial for smaller businesses.
What you should consider doing
If your business turnover is close to the threshold, consider timing your sales and expenses to stay below it. Conversely, voluntary registration can allow you to reclaim VAT on purchases, which might be advantageous if you have significant initial costs.
For example, in the UK, the VAT threshold is £90,000. If your turnover is close to this amount, you might plan to defer some sales or increase your expenditures temporarily to stay under the threshold and delay VAT registration. On the other hand, voluntary registration might make sense if you deal mostly with other VAT-registered businesses, as it allows you to reclaim VAT on business expenses, potentially reducing your costs.
2. Leverage VAT schemes
Why it matters
Different VAT schemes can offer various benefits depending on your business type and turnover.
What you should consider doing
Explore VAT schemes like the Flat Rate Scheme, which simplifies the VAT process and might reduce your overall VAT liability. Other schemes include the Annual Accounting Scheme and the Cash Accounting Scheme, each offering different cash flow and administrative benefits.
- Flat rate scheme: This scheme allows you to pay a fixed percentage of your turnover as VAT, which can be lower than the standard VAT rate. It simplifies accounting and can benefit businesses with lower VAT-reclaimable expenses.
- Annual accounting scheme: This scheme allows you to make nine monthly or three quarterly interim payments based on your estimated VAT liability, followed by a final balancing payment. It can help with cash flow management.
- Cash accounting scheme: This scheme lets you account for VAT on the basis of cash received and paid, rather than on invoices issued and received. It can benefit businesses with longer payment terms by improving cash flow.
3. Maximize VAT reclaims
Why it matters
Reclaiming VAT on business expenses can reduce your VAT bill significantly.
What you should consider doing
Keep thorough records of all business expenses. Ensure you claim VAT on all eligible purchases, including office supplies, equipment, and travel expenses. Also, don’t forget to claim VAT on expenses like mileage or home office costs if you’re eligible.
Regularly review your expense claims to ensure you’re reclaiming VAT on all possible items. For instance, if you use a home office, you may be able to claim a portion of your household bills. If you travel for business, keep detailed records of your trips, including accommodation and subsistence expenses, as these can often include reclaimable VAT.
4. Proper Invoicing and documentation
Why it matters
Accurate invoicing and documentation are essential for compliance and maximizing VAT reclaims.
What you should consider doing
Ensure your invoices meet all VAT requirements, including showing the correct VAT amount. Maintain detailed records of all transactions and keep them organized for easy access during VAT return filings or audits. Using accounting and VAT software can streamline this process.
Invoices should include essential details such as the invoice date, unique invoice number, your VAT registration number, and a breakdown of goods or services provided with the corresponding VAT amounts. Digital tools can help automate this process, reducing the risk of errors and making it easier to track and retrieve records when needed.
5. Timing your purchases
Why it matters
The timing of your purchases can impact your VAT bill, especially at the end of a VAT period.
What you should consider doing
If you plan to make significant purchases, consider timing them to fall within a VAT period where you expect lower sales. This can help balance your VAT payments and reclaims, improving your cash flow.
For instance, if your VAT quarter ends in March and you expect lower sales in this period, making a large equipment purchase in February can increase your VAT reclaim, potentially offsetting your VAT liability for that quarter. Conversely, delaying large purchases to a higher sales period can help balance VAT due and VAT reclaimed, smoothing your cash flow throughout the year.
6. Seek professional advice
Why it matters
VAT regulations can be complex, and mistakes can be costly.
What you should consider doing
Consult with a VAT specialist such as Taxually to ensure you’re making the most of available business savings and complying with all regulations. They can provide tailored advice based on your specific business circumstances and help you navigate any changes in VAT laws.
Professional advice can be particularly beneficial for businesses with complex VAT arrangements, such as those trading internationally or dealing with a mix of VAT-able and VAT-exempt sales. A VAT expert can help identify opportunities for savings, ensure you’re claiming all eligible VAT reclaims, and keep you updated on regulatory changes that might impact your business.
Conclusion
Saving on your VAT bill requires a combination of strategic planning, thorough record-keeping, and a good understanding of available schemes and regulations. By implementing these tips, you can manage your VAT more effectively and keep more of your hard-earned money within your business.
Remember, the landscape of VAT regulations can change, so staying informed and seeking professional advice when needed is crucial for continued compliance and business savings.
Implementing these practices not only helps in reducing your VAT liabilities but also promotes better financial health and efficiency within your business. Stay proactive, stay informed, and ensure your business is leveraging all possible avenues for VAT savings.
Do you need help with your VAT compliance? Book a free call with one of our VAT experts to find bespoke solutions for your business, optimize your VAT costs, and reach millions of new potential customers.
Frequently Asked Questions
What is the VAT threshold, and why should I be aware of it?
The VAT threshold is the turnover amount above which you must register for VAT. Staying below this threshold can help small businesses avoid the additional tax burden.
How can the Flat Rate Scheme help reduce my VAT liability?
The Flat Rate Scheme simplifies VAT accounting and can reduce your overall VAT liability by applying a lower fixed percentage to your turnover.
What expenses can I reclaim VAT on?
You can reclaim VAT on a wide range of business expenses, including office supplies, equipment, travel expenses, and some specific costs like mileage and home office expenses.
Why is proper invoicing important for VAT?
Proper invoicing ensures compliance with VAT regulations and maximizes your ability to reclaim VAT. Accurate invoices prevent issues during audits and VAT return filings.
How does the timing of purchases affect my VAT bill?
Timing your purchases strategically within a VAT period can help balance VAT payments and reclaims, improving your cash flow and potentially reducing your VAT liability.
When should I seek professional advice on VAT?
Seek professional advice if you are unsure about VAT regulations, need help with VAT planning, or want to ensure compliance and maximize savings. VAT specialists can provide tailored advice based on your business needs.
