The Benefits of Managing your VAT
VAT will never win an Oscar for popularity; when it comes to complexity and absorbing management time it has few rivals. it is essential that business owners plan for and manage vat risks proactively to avoid the many pitfalls.
The words ‘VAT’ and ‘horror story’ go together as it is usually only when things have gone drastically wrong that VAT receives the attention it deserves. Unlike other taxes, VAT needs to be constantly monitored and reviewed. This is normal – it is a tax on transactions, each of which carries a potential VAT issue.
The risks of VAT failures far outweigh the small investment of time and effort needed to get it right first time. Some key questions are helpful in managing VAT:
1) Is the business correctly structured?
Is the business model VAT friendly or does it create issues (e.g. holding companies, inter-company charges, agency arrangements, VAT recovery)? Advice at this stage is vital and may even identify VAT benefits such as positive cash-flow, enhanced VAT recovery or a useful special scheme.
2) Are the controls & procedures sufficient to protect the business?
Accounts systems are key, some being better than others whilst new systems often come with bugs. A system is, however, only as good as the person using it. Do the relevant staff really understand the processes, VAT treatments and obligations? Training them can be a good investment. Directors hold ultimate responsibility and need to ask what checks they run to guarantee the accuracy of VAT on sales, VAT recovery and timely compliance.
3) How does the business address VAT issues?
Seeking advice before the event is always cheaper, but not always possible. That said, the sooner the issue is addressed the better the chance of a positive result.
Annual MOT, dental check-up, business audit...why not an annual VAT health check? Given the volume and value of transactions per annum it would be surprising if there were no VAT issues. HMRC can assess for errors going back four years; annual reviews can detect these earlier and identify opportunities to mitigate the damage and make protective disclosures.
When unsure, a business should seek assistance. HMRC can be a useful resource but not in all cases, as they have their own agenda. Professional advice is preferable for impartiality, experience in dealing with HMRC and mitigating penalties.
Date: 21st May, 2015
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