Ten Most Common Mistakes When Processing VAT

When VAT was first introduced in the UK in 1973, it was hailed as a simple tax. As a VAT registered business supplying vatable products and services, you just charge your customers 20% VAT (or 10% as it was back then), you then simply deduct from that figure any VAT you’ve paid to your suppliers and pay the difference over to the VAT man or HMRC these days. Easy as that? Not exactly.

There have been various different VAT schemes introduced over the years, exemptions (such as certain types of food, mobility aids and double glazing and much more) and even reduced rates such as on children’s car seats.

In fact with so many variables on food types, hot takeaways being vatable whilst cold takeaway food and drinks are zero-rated, former chancellor George Osborne tried to simplify the rules in the 2012 Budget so all hot takeaway food “which is at a temperature above the ambient air temperature at the time that it is provided to the customer” was standard-rated.

This led to uproar as items like Cornish pasties and sausage rolls would be taxed. High street bakery chain Greggs delivered a petition to Downing Street that half a million people had signed opposing the plans and eventually the Government backed down.

So, it’s no wonder how many mistakes are easily made when completing your VAT return. So to help make sure you get it right, let’s take a look at the 10 common mistakes businesses make with VAT returns:

1. VAT amount not matching VAT figure on invoice – make sure the VAT you enter matches the invoice. If there are items on an invoice that are not Vatable make sure you split these out e.g. mobile phone bills, utility bills

2. Pro-Forma Invoices – you cannot reclaim VAT on receipt of a Pro-forma invoice. You must wait to receive a VAT invoice and reclaim the VAT as at the tax date on the invoice

3. Entertainment – You cannot usually reclaim VAT on client entertainment even if you have a VAT receipt or invoice

4. Reverse Charge – you may receive invoices from outside the UK for services, these invoices need be reversed charged. Common reverse charge invoices are Google, Adobe

5. Bank Charges should be on the VAT return as an exempt cost

6. Interest paid should be shown on the VAT return as an exempt cost

7. Director loan transactions or personal expenses – you want to keep these types of transactions to a minimum however they do occasionally come up. If an expense is paid for by the business but is not a business expense then you cannot reclaim VAT and it should to be coded to NO VAT

8. VAT Control Account – Do not post direct to the VAT account unless it is the payment from or to HMRC for VAT

9. Manual Journals – Do not post manual journals to the VAT control account

10. Payroll/other taxes – payments or journals relating to payroll or any other type of tax (e.g. PAYE, Corporation Tax) should be posted to NO VAT

N.B. This article is purely a guideline and should not be taken as a definitive and exhaustive guide. If in doubt please contact us 01628 770 770