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Over the last few months, business owners across the country have been bombarded with new challenges and uncertainties . Now, as lockdown is beginning to ease and the government is reducing the level of support available to businesses, managing cash flow is becoming even more critical.

Trying to negotiate your way through cash flow management can be a challenge in itself, so we have highlighted 10 top tips, from a VAT perspective, to help you and your business going forward:

Output VAT

1. Reviewing product liabilities – depending upon the nature of your business, it could be worth reviewing the VAT liabilities applied to your products. There may be scope to zero rate or apply blended rates of VAT which can provide real savings, going back four years on an ongoing basis moving forward.

2. Pro forma invoices – a pro forma invoice does not create a tax point for VAT purposes. Output VAT is only due when the customer pays and you provide them with a valid VAT invoice for the payment. This can reduce the amount of VAT you may be required to fund, in relation to unpaid VAT invoices, when the VAT return is due for payment.

3. VAT Bad Debt Relief – where sales invoices remain unpaid for over 6 months plus payment terms, you should routinely seek to claim back the output VAT paid to HMRC, which has not been paid by your customer.

4. Prompt payment discounts – prompt payment discounts can help to ensure you get paid quickly. Where prompt payment discounts are offered, it is important to make sure you only account for VAT on the amount actually paid by your customer.

Input VAT

5. Input VAT accruals – many businesses delay reclaiming the VAT incurred on purchase invoices until the invoices have been posted to the ledger, approved for payment and in some cases paid.

Where you receive VAT invoices dated within the previous VAT period, which have not been captured within the input VAT claimed for that period, it is possible to accrue that input VAT into the VAT return. This helps to accelerate input VAT recovery and improve cash flow. It’s important to keep in mind that the input VAT accrual needs to be reversed (and then replaced) the following period, to ensure the VAT isn’t claimed twice.

6. Maximise your VAT recovery – common examples where clients leave VAT on the table include:

a. VAT on fuel costs – particularly mileage allowances paid, where employees do not routinely provide VAT receipts.
b. Staff subsistence expenses – covering business travel subsistence costs, team meals, Christmas and summer parties.
c. Employee purchases – purchases made using a company credit card, where VAT receipts/invoices are not routinely provided.
d. VAT coding errors – VAT bearing expenditure can often be posted incorrectly against zero VAT codes (like T0 in Sage).

7. Partial Exemption – there may be room to improve your partial exemption position, by maximising the scope to directly attribute input VAT to your taxable business activities. Where the method used is older and has not been revisited for some time, it may also be worth confirming that it still accurately reflects the use of input VAT by the business.

Compliance

8. Quarterly or monthly returns – where you regularly receive VAT repayments from HMRC, it could be beneficial to switch to monthly VAT returns.

9. Special accounting schemes – depending on the size of your business, there may be advantages to using:

a. Cash accounting – where your taxable supplies are less than £1.35m in the last VAT year, cash accounting allows you to only account for VAT on sales and purchases when they are paid.

This removes any requirement to fund VAT on behalf of your customers who take time to pay. Equally, input VAT can only be claimed when you pay your suppliers.

b. Flat Rate Scheme – where your turnover is £150,000 or less, the Flat Rate Scheme allows you to pay a fixed rate of VAT to HMRC (between 5% and 14.5%), whilst charging 20% VAT in your supplies. You keep the difference, but you can’t reclaim VAT on your purchases, except for certain capital assets over £2,000 (e.g. a work van).

10. Time to Pay – may help you to manage the repayment of any VAT automatically deferred under the government’s COVID 19 support measures, as well as the payments of VAT falling due for VAT periods immediately following the end of June.

How can we help?

We understand the challenges you are facing and we are here to help. Getting the right VAT advice, at the right time, can ensure you structure your arrangements in the most VAT efficient way from the outset.

We are supporting our clients by providing VAT cash flow health checks, covering the areas outlined above and more industry specific opportunities.

Are you unclear on any COVID-19 related issues that your business is facing? Get in touch and we will be happy to assist you

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About the author

Andrew Needham

Andrew is a VAT Partner, who is CTA qualified and has over 20 years’ experience working in the Big 4. He has extensive experience advising clients across both the public and private sector.

He has a wide range of experience across many industry sectors including local authorities, charities and third sector organisations, owner managed businesses and small to medium enterprises through to Plc’s and multinational clients.

Andrew also has extensive experience of advising on all aspects of real estate transactions including social, affordable and commercial housebuilding, care home provision, student accommodation, mixed use developments and commercial property developments.

He ensures his clients manage their business/non-business issues, partial exemption obligations, grant funding arrangements and joint venture and partnership arrangements.

Andrew also specialises in international VAT, where he supports clients to structure their supply chains in a way that manages their overseas VAT compliance obligations and does not create irrecoverable tax costs.

He provides clear pragmatic advice that assists his clients to manage their VAT affairs in an efficient and HMRC compliant way. Andrew has built up good working relationships with HMRC and this helps him to liaise and negotiate successfully with HMRC on his clients behalf to achieve the best outcomes. His work delivers significant VAT savings for his clients.

There are VAT answers and there are VAT answers. It’s not just about answering the question, it’s about how you could do it differently to achieve a better outcome. I really enjoy working with my clients to structure their VAT arrangements and supply chains in the most tax efficient way possible.

Favourite film: Kingdom of Heaven

Favourite book: Beowulf

Favourite holiday destination: Utah – Zion, Bryce Canyons

Favourite restaurant: Ma’ida, Walbottle

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