VAT can feel quite overwhelming, especially when you’re already managing all the different parts of running your business. The good news is, you’re not alone in finding it tricky, and many of the common mistakes are easily avoided once you know what to look out for.
Whether you’ve just registered for VAT or you’ve been handling it for a while, here are some gentle reminders about where things can sometimes go a bit off track, and some simple ways to keep everything running smoothly.
1. Using the Wrong VAT Rate
The UK has several different VAT rates, and it’s not always obvious which one applies to what you’re selling. There’s the standard 20%, a reduced rate of 5%, a zero rate, and some items that are exempt altogether.
What sometimes happens: It’s easy to assume everything is charged at 20%, which might mean you’re charging customers more than you need to, or paying HMRC more than necessary.
A gentle fix: Take a moment to check which rate applies to your products or services. HMRC’s website has helpful guidance, and your accountant can clarify things if you’re not quite sure.
2. Missing VAT Deadlines
VAT returns come round every quarter, and with everything else going on, it’s completely understandable that dates can slip through the cracks.
What sometimes happens: Missing a deadline can result in penalties and might put you on HMRC’s radar in ways you’d rather avoid.
A gentle fix: Pop some reminders in your calendar, or look into accounting software that gives you a nudge when deadlines are approaching. It can also help to spend a little time each week keeping your books up to date, so there’s less pressure when the deadline arrives.
3. Not Keeping Proper Records
VAT requires quite a bit of detail, and without good records of sales, purchases and receipts, it becomes really difficult to file accurately. Plus, if HMRC does ask questions, you’ll want to have everything to hand.
What sometimes happens: When records aren’t quite where they should be, it can lead to mistakes, missed claims, and occasionally, unwanted investigations.
A gentle fix: Consider using software like Xero, QuickBooks or FreeAgent to help you stay organised. Scan your receipts, make sure expenses are in the right categories, and try to reconcile your bank account regularly. It might feel like a chore, but it really does make life easier.
4. Claiming VAT on Ineligible Items
It’s worth knowing that not everything you buy for your business allows you to reclaim the VAT. Things like entertaining clients, most cars, and anything with a personal use element don’t qualify.
What sometimes happens: It’s quite common to claim VAT on things that aren’t actually eligible, which might mean having to pay it back later.
A gentle fix: Before claiming VAT on a purchase, just pause and ask yourself whether it’s purely for business. If you’re not certain, have a quick chat with your accountant.
5. Forgetting to Deregister When You Should
If your turnover drops below £88,000 (the threshold as of 2024), you might find it makes sense to deregister from VAT.
What sometimes happens: Staying registered when it’s not necessary can create extra admin and might even make your prices less competitive.
A gentle fix: Keep a gentle eye on your turnover throughout the year. If things have slowed down, it’s worth having a conversation with your accountant about whether deregistering might be helpful.
6. Incorrectly Treating International Sales
Since Brexit, the rules around VAT for international sales have changed quite a bit, particularly when it comes to EU countries.
What sometimes happens: Many small businesses are still following the old approaches, which can lead to errors and potential underpayments.
A gentle fix: Take some time to familiarise yourself with the current rules, especially things like IOSS (Import One Stop Shop) and distance selling. If it feels confusing, don’t worry about asking a VAT specialist for guidance.
7. Ignoring the Flat Rate Scheme Rules
The Flat Rate Scheme can make VAT simpler, but it’s important to make sure you still qualify and that you’re using the right percentage for your sector.
What sometimes happens: Misunderstanding the rules can mean you’re paying the wrong amount, either too much or too little.
A gentle fix: It’s worth reviewing your eligibility once a year and double-checking your flat rate percentage. HMRC has a helpful list organised by sector that you can refer to.
Final Thoughts
VAT doesn’t have to be something you dread. With a few good habits, the right tools, and perhaps some professional support, it can become just another part of your business routine rather than a source of stress.
If any of this feels unclear or overwhelming, please do reach out to an accountant or VAT specialist. Getting advice now is so much easier (and more affordable) than dealing with complications further down the line.
And remember, getting VAT right isn’t just about ticking boxes for HMRC. It’s about protecting your business, keeping more of what you earn, and giving yourself a bit more peace of mind.
If any of this has left you feeling a bit uncertain about your VAT situation, I’m here to help. Whether you need a quick chat to clarify something or you’d like ongoing support to make sure everything’s as it should be, I’d be happy to have a conversation with you.
Feel free to get in touch, and let’s see how we can make VAT a little less stressful for you and your business.
Email me on marie@vatexchange.co.uk and let’s arrange a call.