Managing Your Vat Correctly to Get the Most out of It

Managing your VAT is not always easy. We’ve looked into the issues involved in business VAT management and have come up with some helpful ideas for VAT management so that you don’t have to face hefty government fines for failure to report your VAT.

What is VAT?

“VAT” stands for “Value Added Tax.” It is a tax charged for value added to the product at the final stages of production and is charged by more than 160 countries around the world including all member states of the EU. It is not charged on products that are exported outside of the EU. There is an extra tax imposed on products and services imported into the EU that’s in place to keep it fair for local businesses. Business VAT return is one of the more complicated and time-consuming procedures just about every major business is faced with towards the end of the tax year.

VAT standards in Europe

• Different member states of the EU have different VAT rules and regulations.
• EU-based businesses that sell within Europe, but outside the company registration must use the reverse charge when doing businesses with countries outside the EU.
• Business VAT return for international businesses marketing digital products to consumers who are not registered with VAT: the business must charge the VAT of the consumer’s location.

Differences in charging VAT

Whether you charge VAT or not depends on whether your customer is registered in the EU. There are three options for charging or not charging VAT:

• If the customer is not registered in the EU, you can charge regular VAT.
• If they are, you can usually exempt them from paying it.
• If the customer is located outside of the EU, you do not have to charge VAT.

What are some of the problems companies encounter with VAT?

• Business Vs. Personal Purchases:

Business VAT returns can only be reclaimed on business purchases. Companies sometimes run into problems when reporting VAT if they include both business and private acquisitions on the same report.

• Reclaiming VAT return for employees

VAT returns are usually non-attainable for employees unless employees need domestic accommodations for business reasons and HMRC agreement is procured.

• Reclaiming VAT returns on meals for higher level company personnel

VAT return can generally not be procured for meals for higher level personnel such as directors and business partners.

What you can do to help manage your VAT returns?

There are three main stages for preparing your VAT return:

• Prepare:

1. Back up all the information for the purchases you’ve made. This includes gathering all the electronic and paper invoices and receipts.
2. Reconcile: Make a chart of all your purchases and make adjustments to it based on additional purchases.

1. Complete: File your VAT returns and get the payment to your bank account.

Penalties for VAT documentation mistakes

Companies who are tardy with their VAT disclosures face fixed fines based on how late they are on their reports. Some fines are reduced or cancelled if the mistake is immediately reported to the HMRC (HM Revenue and Customs, a department of the UK government responsible for collecting taxes).

Business VAT Management: a Worthwhile Investment

VAT management can be a time-consuming process that most would like to avoid altogether. Maintaining organized records of all your business transactions and filing for your VAT return in a timely manner, however, will go a long way in getting a valuable return on your business transactions without having to pay anything. If you invest the proper time and energy into this somewhat tedious process, you are sure to reap the benefits.