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VAT- Pre 6 April Tax Planning Ideas

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2 November 2009

Save tax with our pre 6 April 2010 tax planning ideas 

Whilst the country is officially out of recession, many individuals and businesses are still feeling the effects of the 18 month downturn. With the 31 January filing deadline passed, now is the ideal time to review your tax position to ensure you are paying no more tax than you need to.

These ideas are not exhaustive and are not covered in detail. To discuss your specific circumstances please contact your usual Hazlewoods contact or e-mail tax@hazlewoods.co.uk.

File monthly where repayments are due
If your business’s VAT returns are consistently generating repayments it may be worth considering filing VAT returns monthly to speed up the receipt of repayments. Before you opt for monthly returns you need to consider the increased administrative burden of such a change.
Review of partial exemption position
You should consider reviewing your current partial exemption method to try and improve your recoveries and reduce your administrative burden. We can assist with this and if required we can help negotiate a new method with HMRC.

Flat rate VAT scheme
If your VAT taxable turnover is less than £150,000, you could simplify your VAT accounting by calculating your VAT payments as a percentage of your total VAT inclusive turnover. Although you cannot reclaim VAT on purchases - it is taken into account in calculating the flat rate percentage - the Flat Rate Scheme can reduce the time that you need to spend on accounting for and working out your VAT.

If you register for the Flat Rate Scheme in your first year of VAT registration, you can take advantage of a one per cent reduction in your flat rate percentage.

Annual VAT accounting
If your estimated turnover during the next tax year is not more than £1.35 million you could  use annual VAT accounting. If you are already using annual accounting you can continue to do so until your estimated turnover exceeds £1.6 million.

Using annual VAT accounting, you make nine monthly or three quarterly interim payments throughout the year. These instalments are based on the VAT you paid in the previous year or if you have been trading for less than a year, the instalments are based on an estimate of your VAT liability. You only need to complete one VAT return at the end of the year when you either make a balancing payment or receive a balancing refund.

Annual accounting can reduce your paperwork and make it easier to manage your cash flow. However, it does not remove the requirement to keep all required VAT records and accounts and is not suitable for businesses that regularly reclaim VAT as you would only get one repayment at the end of the year. Also if your turnover decreases, your interim payments may be higher than under the standard VAT accounting.

Prepare for VAT online filing
From 1 April 2010 businesses that either

  • have an annual turnover of £100,000 or more (exclusive of VAT) or
  • register or should have registered for VAT on or after 1 April 2010 (regardless of turnover)
    will have to submit VAT returns online and pay any VAT due electronically. If a business falls into either of the categories mentioned above, they will have to file all VAT Returns online (including nil and repayment returns) even if their turnover drops below £100,000 in the future.

If your business will have to submit VAT returns online from 1 April 2010, the following action should be taken now:

  • Identify the preferred form of electronic payment (eg Direct Debit, Internet / telephone banking, BACS Direct Credit, debit or credit card over the Internet (BillPay), CHAPS transfer, Bank Giro, standing order) and set up the necessary arrangements.
  • Register and enrol for the VAT online service (this will need to be done to submit VAT return online) or appoint an agent.
  • Consider whether the business needs to change any business processes for checking and signing off VAT returns.