Understanding VAT
VAT is an accumulation of taxes being charged on the value added to products and services at every point where a sale is made. VAT is another type of tax that is paid by the customers on the goods and services they purchase, and then paid to the government by the firm at stated intervals. Although this may sound quite simple, the procedure associated with the application of VAT compliance can be quite complex.
Common VAT Errors
1. Incorrect VAT Rates
The first of the frequent mistakes is the issue of the incorrect VAT rate for the goods and services. It is significant to understand that the specific type of products or services may entail different VAT rates, namely the standard, reduced, or zero. One of the negative consequences of applying the wrong rates is overcharging of VAT and, on the other extreme, undercharging of VAT.
How to Avoid It:
Stay Updated: VAT rates should also be checked often because they are likely to change more often than other conditions.
Use Technology: Use the new and current, up-to-date Accounting software that is equipped with the local VAT rate.
Training: It is equally important to ensure that your accounting department has adequate training and information about present rates of VAT and related laws.
2. Late VAT Registration
If one fails to register for VAT when the turnover has exceeded the specified threshold, then he/she faces penalties and charges on interest. Companies that exceed the government’s set VAT taxable turnover are required to register for VAT.
How to Avoid It:
Monitor Turnover: Be sure to pay close attention to your business turnover so that you are aware of when you will need to Make sure to observe your business turnover frequently and ascertain when it is the right time to register for VAT.
Seek Professional Advice: It is always advised to consult with a tax advisor to know what is expected of you and the deadlines to meet.
Plan Ahead: Starting the registration process should be done long before you get to the line.
3. Incorrect VAT Returns
Filing the wrong VAT returns is another mistake commonly made. This could be due to typing errors or the deliberate input of the wrong information. This ranges from mistakes made in calculations on turnover, failure to report sales and purchases accurately, and mathematical blunders on VAT deductions.
How to Avoid It:
Double-Check Entries: Always check and ensure all the entries before filing the returns.
Reconcile Accounts: VAT accounts should be easily reconciled in the normal course to identify any outliers.
Outsource Accounting: You could manage VAT returns yourself, in many cases, it could be more efficiently done by people specialising in that area.
4. Failure to Reclaim VAT on Expenses
It is a common scenario in organisations for VAT to be claimed on allowable expenses, though businesses do not have a chance of getting the refunds. This can happen because some people may be unaware of reclaimable expenses or they may not properly understand what it means.
How to Avoid It:
Keep Detailed Records: Ensure all the records of business expenses are well documented.
Know What’s Reclaimable: Gain as much knowledge as possible on the expenses that can be reclaimed under the VAT.
Use Professional Services: Outsourcing such work to accounting firms that specialises in outsource bookkeeping and accounting services, for better and more efficient handling of it.
5. Cross-Border VAT Complications
It is especially important for organisations that engage in cross-border commerce because VAT across borders is intricate. Various nations have unique policies concerning the structure and operations of VAT, and non-adherence to these rules will attract serious penalties.
How to Avoid It:
Understand International VAT Laws: It is important that you acquaint yourself with the rules of VAT in all the countries that you import to.
Use Specialised Software: Use software or a system that can address every issue concerning cross-border value-added tax.
Consult Experts: Engage with professionals in the field of taxation, with a special focus on compliance with VAT.
6. Incorrect VAT Invoices
Inaccurate VAT invoices can cause cash flow problems and run violations when customers receive improper invoices. There could be missing figures, wrong numbers, and wrong rates of tax on the value added.
How to Avoid It:
Standardise Invoices: Employ templates so as to avoid the omission of important information that is expected to be entered into the database.
Automate Invoicing: Adopt computerised systems for generating invoices in routine services so that mistakes are minimised.
Regular Audits: It is also vital to schedule and perform some checks about the invoicing actions periodically to correct the mistakes.
7. Ignoring VAT Changes
There may also be several amendments to the regulations that govern the application of VAT, and thus it is always recommended to make yourself aware of the latest information on the laws governing the country. Failure to address these matters results in having old practices and not adhering to the laid down policies.
How to Avoid It:
Stay Informed: Read the bills from the tax authorities, as well as newsletters and media articles.
Continuous Training: You should provide regular training for your Accounting/Finance staff.
Outsource Accounting Services: Solicit accounting outsourcing services that offer information on recent changes in the VAT as well as the compliance standards.
The Benefits of Outsourcing VAT Management
Due to practices in VAT compliance involving international regulations and legal concerns, most firms subcontract their accounts, payroll, and bookkeeping. Here’s why outsourcing can be beneficial
1. Expertise and Accuracy
Professional accounting firms mostly deal with matters of VAT and are well-equipped to handle any intricate issue to do with taxes. They facilitate computations and timely submission of the accounts with minimal chances of errors.
2. Cost-Effective
Companies find outsourcing more economical than maintaining a human resources department. It would prevent them from frequent training, and, at the same time, protect them from possible expensive errors.
3. Time-Saving
With the help of outsourcing VAT management activities, business organisations can free up time and resources for their core business functions, which in turn increases the productivity and growth of the organisations. The question of VAT compliance is managed by professionals to avoid making time-consuming tasks a priority.
4. Access to Advanced Tools
Many outsourcing firms have good accounting software and tools; thus, they are in a position to adhere to the prevailing VAT laws. Some of these tools have the functionality of automating certain processes and thus, reducing the occurrence of errors.
Outsourcing is commissioning a third party to perform a specific service or project instead of being done internally; on the other hand, outsourcing can mean that some operations are handled outside the company.
Choosing the Right Outsourcing Partner
When selecting an outsourcing partner for your VAT management, consider the following factors:
1. Reputation and Experience
Select a firm that has experience in the management of VAT issues or a firm with a good reputation in the market.
2. Comprehensive Services
Confirm that the firm provides a comprehensive list of services that one can hire; these are outsourced accounting, payroll outsourcing, and outsourced bookkeeping services. This means that all your financial management requirements can be sourced from one place.
3. Technology and Tools
Ensure that the current technology and software being adopted by the firm matches the VAT compliance and management.
4. Customised Solutions
Choose a partner that has solutions that meet the specialised needs of your business. This includes industry knowledge, size, and the specialised needs of your business.
5. Transparent Pricing
Select a company with a clear system of fees and charges so that you avoid firms that have additional, unknown charges. This helps you to know the cost implication of the project and be in a position to factor it in.
Conclusion
VAT compliance is not an easy thing to deal with, but with regard to the common pitfalls mentioned above and the appropriate measures, VAT compliance should be easy to deal with. Thus, outsourcing VAT management to professional accounting firms is a highly beneficial proposal in terms of subject expertise, cost, and access to sophisticated tools. Thus, it is suggested to select a partner, who will ensure following necessary compliances, while you focus on the expansion of your company.
Corient is among the foremost providers of outsourced bookkeeping and accounting services in the UK. We at Corient offer a comprehensive range of services, such as bookkeeping and accounting outsourcing, outsourced payroll, tax and VAT outsourcing, tax and audit planning, and business advisories.
Contact us today to get yourself the best bookkeeping, accounting, and tax services near you!
