VAT is in many instances regarded as inconvenient for a number of the smaller businesses, yet in fact it can assist with cash flow. When you get the process right you can reach a stage that you will be taking in VAT, holding it before having to pay it out again. In some instances, you might even land up better off compared to not been VAT registered.
While there may be various ways to account for VAT that can benefit your overall cash-flow, before you start to look at the different VAT options, it is really worthwhile to ensure you have the basics covered.
Below are a few common measures to ensure the cash available that you have for day-to-day operations is not getting squeezed:
• Render your invoices so that you are paid fast and try making sure that you avoid having to pay the VAT out until the following quarter.
• Attempt to agree to terms that will give you enough time in order to pay your suppliers.
• When investing in items that are expensive, buy them at the very end of a quarter or directly after your VAT return period to decrease the VAT bill.
Try Out Alternative VAT Schemes
Methods for accounting for VAT, which involves paying the VAT in and then out according to your invoices, is not always the best approach. Christy goes onto to say that not all business owners are aware of the alternatives, which are often beneficial.
The Flat Rate
Flat-rate schemes are available for the businesses that have a turnover that does not exceed £150,000, which can simplify VAT accounting for a business according to VAT Global. This scheme bypasses the majority of the processes involved in preparing VAT returns every quarter. With this approach you will pay out a set amount based on a percentage rate which is associated with your type of business sector and then apply for the amount every quarter in comparison to having to look at each item.
This method is a real time saver and can also result in giving you a lump sum of cash. For example, if your business involves operating expenses which is associated with minimal VAT when travel is your primary operating expense, this scheme can be beneficial to you. You will probably discover that you will be able to maintain some of the cash that you would have originally paid out for VAT. When it comes to the earlier stage businesses, this scheme provides a way to boost cash flow and underpins growth.
The cash-accounting scheme which is widely used, is useful when your “estimated” VAT taxable-turnover for the following tax-year does not exceed £1.35 million. You can use this scheme until such stage that your VAT taxable-turnover starts to exceed £1.6 million.
With this scheme VAT will only be payable on VAT received opposed to standard invoice-basis, where you may be subjected to paying VAT before you have been paid. Turnover limits for this approach cannot exceed £1.5m and is applicable for various businesses. Businesses that are facing cash-flow pressure when it comes to collecting cash can benefit from this scheme. In general, there is usually cash-flow benefits available immediately when the business proves to be profitable.
The businesses that conduct trades internationally or use zero-rated VAT supplies can also find a way to optimize their VAT schemes, in the way of reclaiming more VAT from HMRC than they are paying. For these situations, it is recommended to submit returns as quickly as possible at the end of a quarter to initiate a faster return and to also apply for submitting monthly VAT returns when they are regularly reclaiming VAT from the HMRC in order to benefit their cash flow.
If the business happens to fold, you have the choice to claim for bad-debt relief to receive any of the VAT back. Experts warn that you need to be prepared to give out a significant amount of information that the HMRC will request. For this reason, it is advisable to find out what you can about the process of reclaiming VAT from the HMRC.