VAT – those three letters can strike fear into even the most hardened business owner. We all kind of know what it entails and yet so many can still end up falling foul of the taxman. Nobody wants that.
Bracey’s VAT Director Michele Harris knows the pitfalls and has identified the three most common problems.
1. VAT Threshold
This is the starting point. Do you know what the threshold is? The current taxable turnover threshold is £85,000 – and will remain so until at least April 2022. If your turnover exceeds this figure during a rolling 12-month period, you must register for VAT. This means you must check your annual turnover at the end of each month, not just at the end of your tax year, and this is where many people get caught out.
Some companies fall foul of this when there is a significant, but temporary, upturn in their turnover, for example around Christmas or Easter if you’re a chocolate manufacturer.
If this happens, it may put you over the threshold. If this happens, but you haven’t registered for VAT, you may face a penalty depending.
2. Backdated VAT Registration and Payments
Here’s an interesting one. Let’s say Plasterer Pete or Architect Alice did not register for VAT and was not charging VAT on sales invoices, but his turnover went over the threshold.
At the end of the year, HMRC flags the issue and demands £15,000 backdated VAT from our small businesses. The trouble is, they didn’t make £90,000 profit, they only made £30,000 profit and most of that has been spent on mortgages, food and the general expenses of life. What can they do? They haven’t got £3,000, let alone £30,000.
That’s were Michele comes in. Consulting an expert could help reduce that liability and she has the knowledge and experience to know if you could apply for schemes that would help claw back some of the VAT.
If your Christmas targets exceeded your expectations, we advise that you keep an eye on your projected turnover, or contact our Hitchin office for advice here.
3. EORI Number Required
An Economic Operators Registration and Identification (EORI) number is required by any business involved in import/export to and from Europe. It is vitally important that you obtain this number.
But, be warned, if you are exporting goods to your own premises in another EU country, you will need a different number.
If you need further advice or guidance with your VAT concerns, call Michele on 01438 727141 or email her.