Five essential VAT saving tips


Most business owners prepare their own value-added tax returns. This, however, tends to be boring and time-consuming, and given the many important aspects of a business, the time is better spent on other tasks. As such, when it comes to VAT returns, it's imperative to ensure that you claim back all you can and minimize the risk of making mistakes. That being said, here are a few tips to ensure that your tax standing is more efficient.

Claim on VAT mileage

Most business owners, particularly those who run limited companies, claim back VAT on mileage in order to cover their company's motor expenses, usually at a rate of 20 or 45 pence per mile. It's possible to claim value added tax on the fuel aspect of these mileage claims. The fuel aspect is determined in accordance with the HM Revenue and Customs' advisory fuel rates. Simply find the relevant fuel rate per mile, multiply it by the number of miles covered and apply the value-added tax fraction of 1/6 and that is how much you can claim back.

Claim back on bad debts

If a customer's debt has been outstanding for over six months and they are not likely to make payments, then you can reclaim any sales value added tax paid to the HM Revenue and Customs. Regularly checking who owes you money is therefore imperative. You can, however, avoid having to claim back on bad debts by utilizing the VAT cash accounting scheme. This allows you to not include VAT from a sale on your returns until the customer has paid you.

Utilize good software

Errors in tax returns can be detrimental, but you can avoid them by using a good accounting application. The application will record when invoices have been included on a certain value-added tax return. This reduces the risk of VAT on late invoices not being claimed and VAT being declared twice. You should also consider using a software that has a cloud-based solution as this makes it easier for you and your accountant to review the returns before filing. Some of the best accounting software solutions include Kashflow, FreeAgent and Xero.

Have a separate account for VAT

Value added tax is effectively a type of tax that businesses collect on behalf of the HM Revenue and Customs. It is imperative to manage your business's cashflow as it is very easy to accidentally spend the value added tax as if it were your own working capital. This means that the available cash will not be adequate when it comes to making quarterly payments to the tax agency. The best way to avoid this is by creating a separate bank account so that you can set aside the value-added tax every month. This way, you will avoid nasty surprises.

With these tips, you should not only be able to manage your VAT but also save a substantial amount of money by doing so.