Every three months you have to pay the VAT return and when money is tight this can be difficult. Should you visit your bank manager and ask for an extension to your overdraft or are there any other things you can do to improve your cashflow?
Sounds simple. The are two basic things you can do to improve your cashflow when accounting for VAT, delay the payment of output VAT and speedup the reclaiming of input VAT. Sounds simple but how exactly can you do this?
Delay paying output VAT. There are a number of things that a business can do to delay the payment of output VAT quite legally:
If your turnover is under £1,350,000 per annum you can go onto cash accounting. Using this scheme you only need to account for output VAT after you have been paid.
If you make continuous supplies of services (accountant, lawyers etc) instead of issuing a tax invoice you can issue a request for payment. This does not create a tax point and you will only need to account for VAT when you are paid. Don’t forget to issue a proper tax invoice when you are paid.
Under the tax point rules you have to issue your invoice within 14 days of the basic tax point (date of supply). This creates an actual tax point on the date the invoice is issued, so if it spans the end of a VAT period you can defer paying the output tax by three months.
If you import goods you could consider setting up a duty deferment account with HMRC. This could delay paying import VAT by up to 45 days.
Speed up input VAT repayment. How can I get that VAT back quicker?
Input tax accruals – the right to claim back input VAT arises when the VAT was charged, the tax point. The vast majority of businesses post purchase invoices onto their accounting systems only once they have been approved for payment. Therefore, at the end a VAT period there can be a number of invoices dated within the period but not yet entered into the accounting system and the VAT not claimed. You can make a manual accrual of this input VAT without asking HMRC’s permission, but don’t forget to adjust it on your computer system at the end of the next period so that you don’t claim it twice.
Don’t overlook making a bad debt relief claim if a debt is six months past the due date for payment.
If you have a company that receives property rental income you will normally bill it at the end of each calendar quarter. If this is the case make sure your VAT returns end February, May, August and November as will gain two months use of the VAT before paying to HMRC.
If you have a number of associated companies and they make supplies to each other, or you have parent company making management charges you could take a look at you VAT return staggers to make sure that you can claim back the input VAT in one company before you have to account for the output VAT in the other.
VAT Specialists Limited is headed by Chartered Tax Adviser Andrew Needham who has a degree in Law from UCNW Bangor and is a specialist in indirect taxes. Andrew has over 20 years experience in VAT…
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