VAT continues to be one of the most misunderstood areas of tax, and the consequences of getting it wrong can be serious.
Many businesses are falling foul of rules that are often overlooked or poorly understood, resulting in penalties, cash flow issues, and unwanted attention from HM Revenue & Customs (HMRC).
Below are some of the more frequent missteps businesses are making when it comes to VAT, along with steps to avoid them.
Applying the wrong VAT rate
Not every product or service is subject to the standard rate.
Some are reduced or zero-rated.
Charging the incorrect rate can lead to overpayments or underpayments, both of which can create compliance issues.
Claiming VAT incorrectly
Not all expenses qualify for VAT recovery.
Submitting inaccurate reclaims may prompt questions from HMRC or, in more serious cases, a formal review of your records.
Missing filing or payment deadlines
Delays in submitting VAT returns or making payments can result in automatic penalties.
From April 2025, late payment charges will increase, placing added pressure on businesses to remain timely and accurate.
Overlooking the VAT registration threshold
Any business with a taxable turnover above £90,000 must register for VAT.
Failing to keep an eye on income can result in late registration penalties and backdated liabilities.
Inadequate checks on suppliers
HMRC can refuse VAT reclaims if a business is connected (knowingly or otherwise) to fraudulent supply chains.
This is often referred to as the Kittel principle. While a company might not be directly involved, failing to verify suppliers can have serious financial implications.
Improving VAT processes
To reduce risk and avoid unnecessary complications:
Oversights in VAT handling can often be traced back to rushed processes, lack of awareness, or reliance on outdated systems.
Addressing these issues now can help you avoid problems later.
If you are unsure about your VAT position or want help reviewing your processes, our team is here to support you.
