Value Added Tax (VAT) can be an essential part of doing business, but it's an area that often trips up business owners, especially small businesses and start ups. At DWilkinson&Company, we work closely with tradespeople, shop owners, consultants, and other small business owners across Rochdale and Lancashire, helping them stay compliant with VAT rules while avoiding costly mistakes.
This blog highlights common VAT errors we frequently see and explains how our experienced team can help you with VAT registration, bookkeeping, filing, and compliance with the Making Tax Digital (MTD) for VAT rules.
Common VAT errors that cost businesses money
Many business owners assume that VAT is straightforward - you register, charge VAT on sales, claim it on purchases, and pay the balance to HMRC. But the reality is much more complex; even simple mistakes can lead to penalties, interest charges, and investigations.
Here are some of the common VAT errors we see among Rochdale businesses:
Missing the VAT registration threshold
One of the most common mistakes is not registering for VAT on time. Businesses must register when their VAT taxable turnover exceeds £90,000 (the VAT threshold as of 1 April 2024) during any rolling 12-month period. Many businesses only look at their year-end figures, missing the fact that they've crossed the threshold earlier in the year. This can lead to late registration penalties and a backlog of VAT due.
Incorrectly claiming VAT on expenses
Another frequent error is claiming VAT on purchases that are not eligible, for example, client entertainment expenses, certain car purchases, or invoices without valid VAT numbers. Claiming VAT incorrectly can trigger a VAT inspection and lead to HMRC clawing back the VAT claimed, plus penalties.
Charging the wrong VAT rate
Not all goods and services carry the standard 20% VAT rate. Some have reduced rates (5%), zero rates, or are VAT exempt. We often see businesses charging the wrong VAT rate, leading to underpaying or overpaying VAT.
Failure to issue valid VAT invoices
VAT registered businesses must issue VAT invoices with specific details, including their VAT number, invoice date, and a breakdown of VAT charged. Missing or incorrect invoices can result in disallowed VAT claims.
Poor bookkeeping and record-keeping
Without up to date and accurate bookkeeping, it's easy to miss VAT deadlines, miscalculate liabilities, or lose track of which invoices have been included in a VAT return. Poor records are a major source of common VAT errors.
Not complying with Making Tax Digital (MTD) for VAT
Since April 2022, all VAT registered businesses must comply with MTD for VAT, which means keeping digital records and filing VAT returns directly to HMRC using MTD compatible software. Failure to comply with MTD can result in HMRC charging you penalties.
Misunderstanding the VAT Domestic Reverse Charge for Construction Services
The VAT domestic reverse charge applies to most construction services under the CIS (Construction Industry Scheme). Instead of charging VAT on invoices to other VAT registered contractors, subcontractors must now apply the reverse charge, meaning the customer accounts for the VAT rather than the supplier. This is one of the common VAT errors we see among tradespeople, who either incorrectly charge VAT or fail to show the correct wording on invoices.
How DWilkinson&Company helps you avoid common VAT errors
At DWilkinson&Company, we specialise in supporting small businesses and start ups across Rochdale and Lancashire, helping you stay VAT-compliant and avoid costly mistakes. Here's how we can help:
VAT registration guidance
We will assess whether your business needs to register for VAT or whether it might be beneficial to register voluntarily. We can handle the entire VAT registration process, ensuring it's done correctly and on time.
Bookkeeping and VAT record keeping
Our experienced team provides complete bookkeeping services, so you always have up to date records. We ensure your income and expenses are accurately recorded, VAT is correctly accounted for, and your records meet HMRC's requirements. Click here for more information about our bookkeeping service.
VAT return preparation and filing
We take the stress out of preparing and filing VAT returns. Our team reviews your data carefully to spot common VAT errors before submission. We file your VAT returns digitally and on time and advise you on how much to pay, helping you avoid penalties.
MTD for VAT compliance
We help you comply with Making Tax Digital for VAT by setting you up with the right digital bookkeeping tools and MTD compatible software. We can train you or manage the entire process on your behalf, ensuring full compliance.
Ongoing VAT support and advice
We're always on hand to answer your VAT questions, whether you're unsure about VAT on a specific transaction or need advice on VAT schemes like the Flat Rate or Cash Accounting Scheme.
Further details about our VAT service and how it can help your business can be found here.
Why Choose DWilkinson&Company
With years of experience working with small businesses and start ups across Rochdale, DWilkinson&Company understands local businesses and the practical challenges you face. To help you get to know each other's businesses, we offer a free initial consultation to assess your needs. You can also contact us at 01706 249058 or email office@dwco.co.uk.
We're not just here to crunch the numbers; we're your proactive accounting partner, helping you grow your business while staying on the right side of HMRC. By working with us, you'll have peace of mind knowing that your VAT affairs are in expert hands and that you're protected from common VAT errors.
