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Small businesses, are you vexed by VAT?

18th Jul 2016
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Dafydd Llewellyn examines why small businesses struggle with VAT, and outlines two simple tips to help.

VAT – a topic that often causes people’s eyes to glaze over at a frighteningly fast rate. Introduced to the UK over 40 years ago, it was supposed to be straightforward and simple. Fast-forward many years later, and here we are baffled by its complex rules and dynamic nature. The fact that 75% of senior finance decision makers say they wish they knew more information about VAT reclaim is a case in point.

VAT’s complexity is proven by a variety of tricky rules. For instance, when it comes to employee travel expenses, there’s a difference between off-street and on-street parking when claiming back VAT. Equally, did you know if you hire a car for ten days you can claim back every penny of VAT, but keep the vehicle an extra day and suddenly you can only claim 50%?

These tricky policies are part of the angst that accompanies VAT, and results in one of two things: businesses either over-claiming VAT due to its intricate regulations, or businesses under-claiming as they’re petrified of wrongly submitting claims and facing the consequences. This explains why 13% of finance leaders say they don’t reclaim VAT on expenses at all.

VAT is the third largest source of government revenue in the UK after income tax and National Insurance, so despite the recent EU referendum vote it is unlikely to disappear any time soon. So how can we make sure we’re dealing with VAT the right way?

To my mind, there are two simple tips to help when it comes to VAT: keeping on top of your invoices and expenses as much as possible and utilising automated tools to make your life easier.

Segregate from the start

If you’re an owner of a small business, you probably don’t have a dedicated finance team or accountant. It’s often down to the CEO to ensure they avoid any penalties and monitor cost control – and the last thing you want as an SMB is to be losing money when you’re looking to grow.

So it’s important to be organised; instead of lumping things into AP invoices, code things in the right place initially to save yourself the task of sifting through them at a later date.

Speaking to our EMEA Compliance Director, Matt Lewis, he pointed out that as soon as you can, it’s best to segregate invoices and expenses into separate piles: what you can get VAT back on (e.g. goods and services purchased for business use), and what you can’t (e.g. business entertainment and anything that’s for personal use). 

Automation to the rescue

Automation saves small businesses money and frees employees from mundane tasks, allowing them to carry out more rewarding jobs.

For small businesses, admin tends to be the last on their priority list. Tools automating tedious and time-consuming processes can ensure businesses are up-to-speed and organised – especially with the danger of potential fines for late claims that are all too common for businesses. Cash flow, the life and death of a business, can also be a cause of late VAT claims.

Of course, a human element is always going to be required in the process. But once finance teams are whole-heartedly confident in the data automated tools provide, the less painful the process will become and we might just be able to make peace with our dear old friend Mr. VAT.

Dafydd Llewellyn is managing director UK SMB at Concur

 

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