The ‘charge and claim’ cycle associated with Value Added Tax (VAT) often becomes a routine part of running a business but, with VAT contributing significantly to Government’s annual tax receipts, opportunities to improve VAT efficiency should not be overlooked.
Cash accounting for SMEs
The cash accounting scheme can be advantageous for small businesses. It relies upon monies in and out as opposed to invoices sent and received. Consequently, output tax only becomes due when the sales invoice/s in question are paid.
Businesses with a turnover not exceeding £1.35 million, that are up to date with VAT returns and payments, can opt to use cash accounting. However, it is not suitable for every business.
Professional advice should be sought if cash accounting is something you are considering.
Renting business premises?
If a commercial landlord opted to tax their interest in a building that they now let out to you, VAT will be due on your rental payments. This is true regardless of your VAT registration status.
It may be possible to have a conversation with your landlord about their ‘opting to tax’. In particular, you may want to find out how long this has been in place for.
An election can be revoked if made more than 20 years ago. Any rent they receive from you will be VAT exempt from that point onwards.
Postponed VAT accounting for imports
If you import goods from outside of the UK, postponed VAT accounting means no input tax is payable on arrival.
The importing entity, instead, accounts for any VAT due on imports as part of the return covering the accounting period within which the goods were imported.
Essentially, businesses can defer payment and avoid any immediate adverse impact that importing goods might have on their cash flow.
VAT deregistration – is it feasible?
If you are currently registered but know that your turnover is, for whatever reason, likely to consistently fall below the VAT registration threshold (£85,000) going forward, you may want to consider deregistering.
However, it is important to understand the wider implications such as loss of input tax and how this interacts with your current pricing strategy.
Whether registering or deregistering for VAT, this is definitely a conversation you should have with your accountant.
VAT advice from trusted accountants
As trusted tax advisers and chartered accountants, we recognise the importance of keeping VAT matters under review. We want our clients to be VAT-efficient, just as we champion efficiency in respect of many other taxes.
From knowing when to register and deregister for VAT, to utilising the appropriate VAT schemes, you can count on us to keep you informed and operating compliantly.
To talk to one of our professional team of experts, contact us at our Cambridgeshire, Bedfordshire, or Hertfordshire office.
