10 Value Added Tax (VAT) tips for small business owners

Here are 10 tips to help you keep on top of your VAT responsibilities as a small business owner. From choosing the right VAT scheme in the first place, to filing your quarterly returns on time.

For in-depth information, visit the HMRC VAT microsite here. You can also read our own overview of Value Added Tax.

Top Ten Value Added Tax (VAT) Tips

1. Getting in touch

You can get in touch with HMRC’s VAT helpline on 0300 200 37000 (8am to 6pm). Alternatively, find other ways to get in touch here – including the option to access a Webchat – a useful option, from personal experience at BytesStart.

2. Register for VAT

Whatever trading structure you use, your business must register for VAT if its turnover reaches the £85,000 mark within a 12 month period (2024/25 tax year).

You can register voluntarily even if your turnover is below this threshold.

3. Choose the right VAT scheme for your business

HMRC operates several different types of VAT scheme to cater for all types of business.

As well as the standard VAT scheme, the Flat Rate VAT scheme might be a prudent choise. The FRS was created to provide a simpler way of VAT accounting for smaller firms.

If you join the FRS, your business can enjoy a 1% discount on its flat rate percentage during year one of your registration.

Depending on the way your business operates, the cash accounting scheme might be useful. You only pay quarterly VAT when you have physically received the funds from clients into your business bank account.

4. Impact on customers

Once you register for VAT, you need to include VAT on the costs of any products or services you provide.

This will impact your pricing, and will impact any non-VAT registered customers you had, as they won’t be able to reclaim the cost of the VAT themselves.

This is only a consideration if your turnover is below the current registration threshold, of course.

5. Book Keeping

You must maintain regularly updated, accurate VAT records so that you can complete your VAT returns easily.

Make sure you keep all receipts, invoices, and other documents in a central place for ease of access.

Online accounting software – such as the excellent FreeAgent – makes keeping accurate records a breeze.

6. Keep your VAT liabilities safe

Make sure you keep any VAT you collect on behalf of HMRC in a safe place, and don’t spend it.

We recommend you open a separate business savings account so you can earn interest on any tax liabilities before they are due.

7. Submitting your VAT return

All businesses submit their VAT returns online these days. The days of filling in the green paper return are behind us.

You can submit your VAT return online – via compatible accounting software. Or your accountant will do this for you.

All of the leading software brands, such as Sage, Xero, or FreeAgent connect your Government Gateway VAT account. You can easily file your quarterly returns from within your account.

8. Pay your VAT bill – Direct Debit is best

All VAT payments must be made online. Via online banking, corporate debit card, or direct debit. Make sure you have your 9 digit VAT number to hand.

The best way to do this is to set up a direct debit, so HMRC takes the money direct from your business bank account.

If you opt for the direct debit method, you get an extra 7 days to pay.

9. VAT penalties – new regime from Jan 2023

Avoid being late with your VAT returns and payments.

A new penalty regime started in January 2023. For each late return, you receive a penalty point. Once you reach the penalty threshold, you are liable for a £200 penalty for the current and future late submissions.

Late payment penalties and interest also apply.

It simply isn’t worth the hassle. Find out more about VAT penalties here.

10. If in doubt ask your accountant

If in any doubt about your VAT responsibilities, or how to calculate your tax liability, your first port of call should be your accountant.