VAT takes less effort once you set up a few good habits. These tips help you reclaim more, keep cash flow steady, and avoid trouble with HMRC. None of them are shortcuts around the rules. They are sensible steps that many businesses miss.
Keep VAT in a separate account
Move the VAT you collect into its own bank account. When the return is due, the money is already there, and you are not caught short. It also stops you spending VAT by mistake during a busy month.
Reclaim VAT on costs people forget
Some reclaims get missed. If the cost is for the business and you have a valid VAT invoice, you can usually reclaim the VAT on:
- The business share of your mobile phone bill
- The business share of home costs, such as heating and broadband, if you work from home
- Fuel used for business travel, if you keep proper records
- Professional memberships and trade publications
Reclaim VAT from before you registered
When you first register, you can reclaim VAT on some goods bought in the four years before, and some services from the six months before, as long as you still use them in the business. This can be a useful first return.
Use cash accounting if customers pay slowly
If you often wait to be paid, the Cash Accounting Scheme means you pay VAT only once the money arrives. That keeps cash in the business and avoids paying VAT on invoices that have not been settled.
Use postponed VAT accounting on imports
If you import goods, choose postponed VAT accounting. You account for the import VAT on your return instead of paying it at the border, which keeps cash free. Tell your shipper before the goods move, as some default to the old method.
Time large purchases well
If you plan a big purchase, the timing affects your cash flow. Buying just before a return means you reclaim the VAT sooner. Buying just after means a longer wait.
Check supplier VAT numbers
Before you reclaim VAT on a large invoice from a new supplier, check their VAT number is valid. If the number is false, your claim can be refused. A VAT number checker takes seconds.
Review your VAT scheme each year
Your best scheme can change as the business grows. Review whether standard accounting, the Flat Rate Scheme or cash accounting suits you now. A quick check each year can save money.
File on time, even if you cannot pay
A late return brings penalty points and charges. If you cannot pay the bill, still file on time, then contact HMRC about a time to pay arrangement. Filing late and paying late is worse than paying late alone.
Frequently asked questions
How can I reclaim more VAT? Keep valid VAT invoices and claim the business share of costs such as phone, home working, fuel and subscriptions, which are often missed.
Should I keep VAT in a separate account? It helps. Moving collected VAT into its own account means the money is ready when the return is due.
Can I reclaim VAT from before I registered? Yes, on some goods bought in the four years before and some services from the six months before, if you still use them in the business.
How do I avoid VAT cash flow problems? Set aside the VAT you collect, consider cash accounting if customers pay slowly, and use postponed VAT accounting on imports.
What if I cannot pay my VAT bill? File the return on time, then contact HMRC to arrange a time to pay plan. Filing late makes things worse.