Get That VAT: Ways to Get Tax Relief
– This article was last updated on 20 July 2021-
A lot of small businesses either lose money or don’t get back the full tax relief amount they could, because they make avoidable mistakes or don’t investigate every avenue for what they can reclaim. What you don’t know can cost you. Good expense management practices keep you from missing out on common allowable expenses. Here are a few other commonly overlooked ways to get tax relief.
Understand the Outs and Ins of VAT
Not an easy thing to demand, we know, but if you’re a VAT-registered business, it’s worth the effort to understand. Your VAT output is what you charge customers in tax. VAT input is what you can reclaim from HMRC. Depending on the nature of your business, you might qualify for – and benefit from – the flat-rate VAT scheme.
The threshold for VAT registration is, as of 1st April 2021, an annual taxable-sales total of 85K pounds. Taxable sales include almost any consumer good, so if you sell something and you are at the threshold, you need to register within 30 days. You will owe the VAT whether you’ve charged the customer for it or not, so price your goods accordingly.
Even if you aren’t at the threshold, you should still price your products accordingly so that when you get there, your customers aren’t surprised by the rise. You can find a list of goods and services with their attendant rates on the Gov.uk site.
Track Every Expense
Yes, every one. Too many small businesses don’t log small expenses because they don’t think it will be worth the effort. That’s a mistake. You can claim the VAT on purchases you make for your business, and even in some cases on purchases you made before you were VAT-registered. If you’re unsure whether an expense will be allowed, consult HMRC or an accountant; small expenses can add up.
Note that the expenses you are allowed to claim for will be affected by whether you pay flat-rate or standard VAT, so you should seek advice on which status will be more beneficial.
Businesses are charged a standard rate (depending on their size) according to their profit, so accurately and thoroughly calculating your expenses against your revenue is key to correctly reflecting your profit.
Don’t Forget R&D and Benefits
Both of these activities usually carry associated costs that can be reclaimed. In addition, offering certain types of benefits, such as childcare vouchers, to your employees can also lower your tax liability under the salary sacrifice arrangement. And last but not least, there are expenses allowed that are specific to certain businesses and industries.
Be on Time
HMRC is generally helpful with resources and information for small businesses, but they have little patience for those who file late or file incorrectly. Late filings can incur penalties, so one way to save your business money is get your documentation in on time and in good order.