How to avoid and rectify common VAT mistakes

Less than £90,000

Mostly non-VAT registered customers

Don’t register for VAT

You can offer lower prices than VAT-registered competitors, as you do not have to charge the 20% VAT.

Inability to Reclaim Input VAT

Less than £90,000

Mostly VAT registered customers

Voluntarily register for Standard Rate VAT

VAT-registered customers can reclaim the 20% VAT you charge them, making your prices (excluding VAT) more competitive to them than if you were not VAT registered. You also reclaim all your Input VAT.

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From £90,000 to £150,000

Any

Register for Standard Rate VAT or Flat Rate VAT

If Flat Rate:

You only pay HMRC a flat-rate percentage of your gross turnover.

If Flat Rate:

You cannot reclaim input VAT, which makes it unsuitable for businesses with high VAT-able expenses.

£1.35 million

Any

Register for Cash accounting scheme or Annual accounting scheme

If Cash accounting scheme: -Don’t pay or reclaim VAT until actual money changes hands for purchases and sales -Improves cash flow as you only pay VAT once you are paid

If Annual accounting scheme: -Improves cash flow as you pay VAT less frequently (in monthly or quarterly instalments)

If Cash accounting scheme:

Delayed VAT reclaims on purchases

If Annual accounting scheme: -Can only reclaim input tax once a year, which is damaging if you rely on cash from reclaiming VAT throughout the year