VAT or Value Added Tax is a kind of consumption tax. Whenever a new feature or value is added to a product in any stage of the production process, a consumption tax is levied on it which has to be paid by the end users. Therefore, when the market price of a product is subtracted from the total cost of all the taxed materials that is used in producing it, we get the total amount of VAT that a consumer has to pay.
In UK, only those business houses that have a turnover of or above the VAT registration threshold are liable for paying VAT. Presently, the VAT registration threshold in UK is more than £ 77,000. The business houses that do not subscribe to the VAT laws and regulation have to pay huge penalties. Here are best five tips that will be useful for the small and big business houses for managing their VAT liability.
Keep Yourself Updated
VAT legislation are quite complicated, and the laws change frequently. Therefore, it is extremely necessary for entrepreneurs to keep themselves updated about the VAT laws, the rates of tax applicable as well as the VAT registration threshold to avoid penalties. If you are finding it difficult to manage the VAT liability of your firm, then it is best consulting a professional accountant who will manage the same on your behalf. Moreover, in case of disputes regarding VAT payment it is always advisable to consult a professional who will be assisting your VAT fraud claims and resolve the issues.
The next important thing that the entrepreneurs of small, medium and large organizations need to focus on is timely payment of all the dues. Penalties imposed on defaulters are huge and will be detrimental to the interest of the small firms. Moreover, make sure that all the calculations have been made perfectly so that you do not need to face the consequences afterwards.
Cash Accounting Might Be Beneficial
Entrepreneurs have the option of choosing cash accounting scheme for calculating VAT, whereby you need to pay VAT only on the amount that the customer has already paid you and not on all the sales from your business house. However, only those entrepreneurs who can show that their estimate turnover for the coming year will be not more than £1.35 can opt for this VAT accounting scheme.
Avoid The Huge Paper Work
Annual accounting scheme helps you to avoid the colossal amount of paper work involved in VAT filing. In the standard scheme, you need to pay VAT return in every four months. But in the annual accounting scheme the VAT returns can be filed in every nine months or once in a year. So it is a much more convenient option. However, only those firms who have an estimate turnover of £ 1.35 million for the next financial year can opt for it and continue using until their turnover hit £ 1.6 million.
Inform Ahead of Time
In case you have less cash flow at the time of paying VAT return, contact HMRC at the earliest and inform them about your current financial problems. In many cases, the authorities consider such request and extend your term. If needed seek the help of professional practitioners to assisting your VAT fraud claims and presenting your case before authorities to resolve the problem.
These are some of the useful tips that will help you in managing your VAT liability successfully. Since VAT is a complicated area of taxation, you should always take help from specialist to make payment in the right time and at the correct rate. Clearing tax liability is extremely important for successfully running a business so make sure you file your VAT return on time.
About the Author: The above article is written by Jack who is a financial expert with J K Investment Ltd. He recommends that if needed seek the help of professional practitioners to assisting your VAT fraud claims and presenting your case before authorities to resolve the problem.