Scouting the best contract for you

Latest News

HMRC Is Upping Its VAT Inspections, Warns Abbey Tax Advisory

When it comes to VAT, most contractors are just trying to do the right thing. To pay the right amount, no matter how often the rules change or how much the rates rise.

Well, keep doing what you’re doing. Because the HMRC has recently become “very active” in enforcing its VAT rules, says advisory firm Abbey Tax.

They report that the number of contractors claiming on their fee protection insurance has risen by 17% in the last six months. And 39% of those claims were to do with VAT.

The increase might be down to HMRC’s Hidden Economy Teams, or ‘HETs’, who track people illegally evading tax. “They’ve been very active in the VAT arena,” says Abbey Tax. But it could also be thanks to new rules introduced for Fixed rate Scheme users in April, which have caused a lot of confusion.

To stop you making an honest mistake, we’ve put together to a quick guide to VAT. If you’d like more help, we also offer accounting services. Just give us a call on 0203 603 1878.
 

Know your limits
You must register for VAT if your VAT-taxable turnover hits more than £85,000 in 12 months, or if you think you’ll go over that limit within 30 days. Your VAT taxable turnover is the total value of everything you sell that isn’t exempt from VAT. If you won’t reach the limit but you buy more than £85,000 worth of goods for your business annually from VAT-registered suppliers, you should also register.
 

Do it yourself
You can register for VAT voluntarily. It means you can recover the VAT on things that you buy for your business. Registration takes about 8 weeks.
 

Give a little, take a little
If you’re a VAT-registered business, you charge VAT on sales and can reclaim VAT on things you buy from other VAT-registered businesses.
 

Happy HMRC
Every three months you have to send a VAT return to the VAT office which shows how much VAT you’ve charged and how much you’re reclaiming. Then you’ll either pay the difference, or get a rebate if you’ve claimed more than you’ve charged.
 

Know the numbers
VAT is currently charged at 20% but there are some exceptions. Sales can be ‘zero rated’ – you don’t charge VAT but you can reclaim it – or ‘exempt’, where you can’t charge or reclaim VAT.
 

Consider switching to the Flat Rate Scheme
This lets you pay a percentage of your turnover instead of paying the difference between your charges and claims. It could save you money but there are still rules to follow. You still need to show a VAT amount on your invoices, and you can’t reclaim VAT on purchases, unless they’re capital items like land, buildings or computer equipment, costing £2,000 or more.