Dreaded VAT is easily manageable

Most businesses and organisations hate unnecessary bureaucracy, especially when it costs them money. It’s easy to see why having to spend valuable time calculating a VAT liability and then sending a payment to the Treasury isn’t exactly popular.

In fact, though, being registered for the tax can be worthwhile financially. In most cases, you are allowed to claim back the VAT you have incurred on business expenditure such as office equipment, fuel, hotel accommodation and phone and internet use.

This means you can deduct spending which falls into this category from the quarterly amount which you send to HMRC.

The process of accounting for VAT is actually relatively straightforward, especially if you are a small business and employ an accountant.

You may well only have to file a return once a quarter. The important thing is to keep permanent records of the VAT you have received in income during that period, along with receipts for relevant expenditure.

If you send these records to your accountant at the close of the quarter, they should easily be able to calculate the VAT you owe.

For a small company or sole trader, the cost of this service shouldn’t be exorbitant – £100 for each return might be a typical figure. The money you save by reclaiming VAT may well more than pay for this.

Sending accounts to your tax adviser every quarter is also good discipline because it means that when it comes to your yearly accounts, they should already have the information they need.

HMRC is keen to make the VAT accounting process as simple as possible and it can offer some businesses time-saving schemes such as annual declarations or even flat rate payments, where they simply hand over a fixed amount of their income which is less than the 20 per cent those companies normally add on to their bills.

ANDREW COLLIER