Six ways to avoid VAT penalties

Six ways to avoid VAT penalties

The VAT penalty régime is intended to make more businesses comply with the deadlines for submitting VAT returns, paying VAT and keeping accurate business records. Here are six simple things you can do to help avoid a VAT penalty.

  1. Submit your VAT return by the due date. Almost everyone has to do their VAT returns online which is a simple process. Remember to print the receipt and to get a copy of the return as you’ve submitted it for your files.
  2. Pay the VAT you owe on time. If you pay by Direct Debit you will get extra time to submit your VAT return and the money will be taken from your account about 10 days later than if you pay manually. You will be told the day on which the money will be taken when you submit your VAT return.
  3. Make sure you have enough money to pay your VAT bill. If you are short of money tell HMRC as soon as you know this. If you tell them before the due date of your VAT return you may be able to avoid a penalty. I doubt that HMRC will allow this to happen if you regularly ask for time to pay.
  4. Keep your books and records up to date. Do you hate this drudgery? Join the club! You’ll find it really useful to find yourself a good bookkeeper to do it for you. The time this will free up for you to do more work and earn more money will more than make up for the cost of using the bookkeeper. And the feeling you get when you know your books are being done regularly so you know where you are with your finances is amazing.
  5. Made a mistake? Correct it straight away. If you leave it and you have a VAT inspection you may have to pay a penalty for failing to correct it. There’s no point in saving up errors until the VATman comes visiting because they’ll deal with them and probably levy a penalty. You can find out more about what to do in VAT Notice 700/45: How to correct VAT errors and make adjustments or claims.
  6. Always seek advice if you are unsure of the right VAT treatment of something you are doing or buying. If you ask HMRC make sure you get a reference for it so you can quote it if it’s questioned at a VAT inspection. You can write to HMRC to get an answer, although this takes time and HMRC may just tell you were to find the answer in the guidance it publishes. You would do better by asking a professional VAT adviser that will take the time to understand your situation and give you the best answer for your business. It may cost more than going to HMRC although the benefit is that it will probably save you money in the long run.

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