VAT Essentials

VAT Essentials: What Small Businesses Should Know

VAT Filing Deadlines and Punctuality

Most small businesses submit VAT returns every quarter. Both your VAT return and payment must reach HMRC by the deadline, typically one month and seven days after the end of the VAT period. If that deadline lands on a weekend or bank holiday, plan ahead to ensure submission and payment arrive on the last working day before the cut-off.

Recovering Input VAT

VAT registered businesses can reclaim VAT on valid purchases, provided:

  1. The expense was solely for business purposes.

  2. A proper VAT invoice exists.

  3. The seller is VAT-registered.

Proforma invoices do not qualify, and invoices from non-registered suppliers cannot be reclaimed.

Payment on Account for High Turnover

If your business’s annual VAT liability exceeds £2.3 million and you file quarterly, HMRC may require advance "payments on account." These are calculated based on your latest VAT year and paid in smaller increments throughout the year. You’ll receive a schedule from HMRC, and must comply unless your liability drops significantly—at which point you can request revised terms.

Choosing VAT Accounting Schemes

Cash Accounting

  • VAT is paid only once funds are received from customers.

  • Helpful for improving cash flow, especially during delays.

  • Also provides automatic relief for bad debts (if a customer doesn’t pay, you owe less VAT).

  • Not suitable if you’re already handling invoices in the traditional way—transition rules apply.

Flat-Rate Scheme

  • Simplifies administration by applying a fixed percentage to gross turnover.

  • You still charge full VAT to customers but pay HMRC a flat rate.

  • Designed for smaller businesses (turnover under £150,000 excl. VAT).

Handling Bad Debt VAT Relief

If you’ve paid VAT to HMRC on an invoice that remains unpaid after six months, you can claim relief. The debt must be written off in your accounts, and you cannot transfer ownership of the debt. In your next VAT return, simply enter the relief as a deduction.

Making Tax Digital (MTD) for VAT

VAT-registered businesses with annual taxable turnover above £85,000 must maintain digital records and submit returns via HMRC-compatible software. While lower-turnover businesses can register voluntarily, certain exemptions apply (e.g. insolvency or remote business locations).

Key Takeaways for VAT Compliance

  • Timely Submission: Don’t miss deadlines—late returns or payments can lead to fines.

  • Invoice Management: Keep accurate, valid VAT invoices to support claims.

  • Choose Wisely: Cash accounting and flat-rate schemes offer advantages—but suitability depends on your trading pattern.

  • Stay Digital: MTD compliance is mandatory for most VAT-registered businesses.

Need Help?
Our team can assist with VAT registration, choosing the optimal accounting scheme, managing digital records, completing payments on account, and claiming reliefs like bad debt refunds. Let us take the complexity out of VAT—so you can focus on growing your business.