How to reduce VAT?

[Brian Turner]

I'm getting a little annoyed at all the VAT I'm paying out - I always thought it'd be Corporation Tax I wouldn't like, but it seems like I'm actually paying out more in VAT.

I have a number of large UK clients I have to charge VAT to - but most of my service providers are either small UK companies/individuals or else US companies, so there's no VAT charged.

Of course, I guess I could try buying more services from VAT registered UK companies, but the likelihood is that this would also accelerate my costs, so I can't see a net gain.

Any suggestions on simple ways to reduce my VAT bill?

[monaghan]

Buying from VAT registered business rather than non registered business is really the only legal way of offsetting your input & output amounts. The calculation is after all "pay us the difference between what you collect and what you pay out"

[wood1e]

And it is not your money you are paying, as you charged the VAT. So you are just passing it on. Unfortunatley

[monaghan]

If it's a reasonable amount, you could pop it into a deposit account and gain a bit of interest before you pass it on to HMCE

[DavidToohey]

Brian

I know this has been some weeks back... but guessing it is an ongoing problem.

As I am sure you are aware, it is money collected that never hits your P&L so it's not affecting your Profit/Loss. Do you use tools such as a rolling weekly cashflow so that you can see and prepare for this easily?

Otherwise, are your accounts maintained weekly or even monthly? Received regular Management Accounts? Just that looking at your Balance Sheet Regularly you will be able to keep tabs on how the VAT Liability is growing/changing... so long as you do have access to current information.

Hope I'm not telling you how to 'suck eggs'.

[Brian Turner]

I think it's more a problem in that I'm charging VAT, so I end up with larger revenues than I'm actually receiving for P/L purposes. So I look at total revenues, think "cool", then see how much of it I'm losing to VAT payments, and it feels like I'm simply being taxed.

Really hate having to charge VAT to clients as well, especially as some sectors don't appear to be VAT applicable.

[DavidToohey]

Brian

VAT is difficult to fiddle... apart from delaying invoicing so that rather than raising invoices at the end of a quarter, they can be raised early the following quarter... limited to businesses that can operate in that way.

It may be worth finding out on VAT supply and charging as it may be possible to change the way you charge VAT... unfortunately I don't deal with VAT much anymore and been years since I was really involved with it.

I think the main thing is on your reporting side to separate VAT from the Revenue... It may appear within cash received, revenue as such but it is better to look at P&L Statements to see the real picture of how things are... and use some form of rolling cash flow forecast when looking at your cash side, or simply the VAT Liability accounts on your Balance Sheet.

Just change the way you look at it, the reports and figures you are viewing and it will become easier... try to stay away from the actual bank account apart from using this to maintain & reconcile the books and manage the cash flow, better to look at a Bank Reconciliation to also see Cheques Outstanding etc.

I know you have changed accountants in the not too distant past (saw your thread), what service are you currently using from them? Is it mostly the year end compliance, or do they also provide monthly/quarterly services such as management accounts, VAT Returns? Just trying to get an idea of the extent they are involved and how much you manage yourself.

[Brian Turner]

Thanks for the comments, David - I manage the VAT returns myself as these are relatively simple.

I think the big issue for me, as you pointed out, is to stop looking at overall revenues and look specifically at revenues after VAT for my income.

I was actually writing a report for a client, recommending we upgrade their services to a higher plan. I was going to insert sample figures of cost, then realised I hadn't accounted for VAT, so had to raise these higher. As I tend to view myself as being pretty cheap and effective, it always makes me uncomfortable seeing client costs increased because I have to add VAT.

No chance of my trying to fiddle VAT, though - accounts just plain scares me, but not as much as the Tax Man. I aim to stay on the right side of HMRC.

[An Oasis]

Looking at VAT as something which is nothing to do with your finances is the best way. By keeping VAT as a completely separate entity it does not hurt when you send in those cheques.

Luckily the main bulk of our clients are corporate or at least VAT registered so the whole thing is a pointless exercise but it always pains me when we deal B2C. I don't even mind the idea of a luxury goods tax (as was the initial concept of VAT) but when it is put on virtually everything it's just another back-door tax rip off.

Remembers - A supplier from years ago started to fiddle his VAT he thought it was really clever, a few hundred here and a bit less there, used to brag about it down some of the local pubs. I left and started work in Germany for 9 months, then did freelance work all over the place the next time I saw him was about 3 years later he was still at it but the amounts had escalated and he was virtually living of the proceeds he was a nervous wreck.

[DavidToohey]

A bit of a shame to hear stories like that with VAT... the stress of being a dodgy one, and then the chances of getting caught out are just not worth it... easier to work at making a successful business.

It is best not to get too involved in it, apart from managing cash flow and things like deciding whether or not to be registered.

Brian, are you using accounting software or mostly tracking it using a spreadsheet?

Just that technically, VAT doesn't form any part of revenue and accounting software will pick this up and include VAT in the VAT Liability account.

With customers, I take it these aren't VAT registered? I think with UK law you can simply quote all prices 'ex VAT'. In Australia, when I was last there over 5 years ago now, legally you had to quote inclusive of GST (Aus's VAT). I used to quote both since dealing with business (GST/VAT registered) their actual expense is excludes VAT, which then goes in that VAT Liability account.

Are most the people you deal with VAT registered, not registered or simply a mix?