How Can I Decrease my VAT Bill to HMRC?

We have people asking us this question so often and the quick and simple answer is only through legal avenues (because the alternative isn’t worth it) and keeping proper accounting records. The reality is all business struggle with paying their VAT bill and it hits hard on business cash flow. 

The first thing to do, is accept that you are VAT registered and make sure you maintain proper accounting records to substantiate your VAT inputs and also your outputs. If your turnover is over £85,000 in a 12 month period, or you expect it to go over £85,000 in the next 30 days, you have no choice but to be registered, so make sure that you can claim the best possible inputs to reduce cash outflows or consider the different VAT schemes that will best suit your business.

There are various ways to ensure your VAT bill is accurate and you are not paying more than is required.

1. Get a proper accounting system that keeps records of all your business transactions. We love working with Xero because you can link all your business bank accounts to the software, and you are able to import all business transactions. Xero also links to various other tools that makes it easier to keep accurate accounting records.

2. Use data extraction tools like ReceiptBank and Hubdoc’s to link/attach all supporting documents to the transaction through the bank. You can also bring in all transactions that were paid through directors’ monies or cash and the supporting documents are easy to inspect if HMRC requires you to submit them.

3. Maintain and process your accounting records regularly and calculate what your VAT bill will be sooner rather than later. If you know what you need to pay, it is easier to plan your business dealings and ensure you have the cash available to pay your bill.

4. Avoid mistakes by following step 1-3, because penalties on incorrect VAT submissions are a terrible thing, they’re unnecessary and makes everyone cranky and cross!

5. Budget for your VAT bill. If you know you are VAT registered and your turnover is an amount, you should budget for VAT and try and put the cash flow away.

6. Get financing or make alternative arrangements when you know you can’t pay your VAT bill. 

7. Consider registering for a different VAT scheme like flat rate or cash basis, especially if you are in the service industry and have no VAT inputs i.e. expenses that have VAT on them.

VAT is the one tax that HMRC knows people take chances on and they have very cool ways of picking up VAT returns submitted with errors. They take a very dim view of ‘errors’ which they believe to be made on purpose.

So, let’s get the basics right and ensure your accounting records are a true reflection of your business and possibly this could be the answer to managing your business’s VAT bill going forward.