There is always so much misleading information about VAT circulating – good old Dave down the pub likes to share his views and his take on the rules! But quite often it’s just that – his opinion, and very rarely is the information correct. So in today’s blog let’s debunk some myths around VAT!
Myth 1 – The VAT threshold is the 12 months of your financial year
This is quite a common one we hear – but the threshold is actually taken into account on a rolling 12 month period, not your financial year, not the tax year or even the calendar year. So it’s something that needs checking regularly – and we’d say monthly as you’re getting closer!
So the way to check is to add up the monthly revenue for the last 12 months and see what that totals. And then next month do the same again, and again every month. As a rough guide when you start going over around £7k a month in turnover you’re likely to be getting close.
Myth 2 – You can claim VAT back in personal stuff if paid through the business
Sorry, no, you can only claim VAT back on business expenses, even if you paid for your personal item through your business. And while we’re on it – you also need the correct VAT invoice/receipt – check out all the details here!
Myth 3 – Generally VAT is horrible and kills your business
I think this is one that bugs me the most – so many people are afraid of VAT but it’s a healthy sign of growth. And a milestone that should be celebrated, not feared! This is definitely a mindset thing, if you think the worst, then the worst will happen.
Be positive and embrace this next chapter of your business instead. Give yourself a pat on the back (or a glass of bubbles) for growing your business to that level of turnover – 6 figures here you come!
Myth 4 – That you’ll lose money
If you’re on top of your figures and are able to plan for going VAT registered, then you can also plan for increasing your prices accordingly, and you will also be able to claim VAT back on all your expenses that include VAT.
We actually find when clients plan for this next step they’re mostly actually better off!
Myth 5 – You have to be VAT registered if you’re a Limited Company
No, just because you’re a limited company it doesn’t mean you need to be VAT registered too – it just so happens that when many people set up or switch from Sole Trader to Limited Company they’re at the level where they’re near or gone over the threshold.
Myth 6 – Using the flat rate scheme is cheaper
The flat rate scheme may look good – especially when you see low rates to use, however – there is a small piece of legislation called Low Cost Trader, and if you are classed as one of these then you’ll actually end up paying more to the VAT man – and no one wants to give them more than they have to! Check out more on Low Cost Trader here.
Myth 7 – VAT on entertaining.
You can only claim VAT on food when traveling or as part of staff entertainment, you can’t claim VAT unfortunately on your normal lunches or any client entertaining. Caroline wrote a great blog on all the details here – go check it out for more!
I hope this clears up a few things for you. We have loads of (correct) information on VAT – check out our website for all our VAT related blogs! And if you need help with VAT – or anything accounting related – let’s chat! Pop over to our Get Started page, complete the quick questionnaire and we’ll be in touch!
And finally a little shout out to Hiral Jethwa (HJ Photography) for helping us put this video together!