If you have started a business then it may take a couple of years to get to the point where the turnover of the business reaches the point where you have to register it for VAT. This is currently set at £82,000 a year and the point where you know you have got to start getting serious about your accounting to make sure you remain compliant.
With this in mind here are three common pitfalls small business owners make on VAT and how to avoid them.
Claiming VAT on entertaining your clients
You cannot claim VAT on wining and dining your clients. Claiming VAT only applies to entertaining your current employees.
Using the flat rate VAT scheme without making an application
Flat rate VAT is not something you automatically have a right to. It is compulsory to apply to HMRC to be a part of it and they must accept your application beforehand. If you don’t apply and use flat rate VAT you may receive a penalty for paying the wrong amount of VAT.
Calculating flat rate VAT incorrectly
Calculating flat rate VAT is not necessarily a straightforward process. You will need to calculate the right percentage on your sales and work out those that fall within the scope of VAT.