Common VAT mistakes small businesses make
VAT generates more corrections, penalties and quiet overpayments than any other tax a small business touches. The same handful of mistakes cause most of the damage.
Registering late
The threshold test is a rolling twelve months, not your accounting year, and nobody watching the rolling figure is the classic cause of late registration, with HMRC expecting the VAT you should have charged from the date you should have registered. We cover the mechanics in the VAT threshold, explained.
Reclaiming VAT you cannot reclaim
Client entertaining is the perennial one: the VAT is generally blocked, however business-flavoured the lunch. Cars, private-use elements and purchases without a valid VAT invoice are close behind. A receipt is not automatically a reclaim.
Missing VAT you can reclaim
The quieter mistake runs the other way: subscriptions on personal cards, mileage claims, pre-registration costs on assets still in use. Businesses that lose receipts systematically donate their own money to HMRC in small, regular instalments.
Getting the construction reverse charge wrong
In construction supply chains, the domestic reverse charge shifts who accounts for the VAT, and both charging VAT where you should not and failing to apply the charge where you should create messes that take longer to unpick than they did to make. Our note on the reverse charge covers it properly.
Sitting on the wrong scheme
Flat rate, cash accounting, annual accounting: each suits a particular shape of business, and the right answer changes as you grow. A scheme chosen at registration and never revisited is frequently costing money years later.
Returns that do not reconcile
A return should agree with the books, and the VAT control account should agree with both. Filing figures nobody has reconciled is how small errors compound into disclosures. It is also entirely avoidable: our VAT service reconciles before it files, every quarter.
This note is general guidance. If any paragraph above felt uncomfortably familiar, get in touch before HMRC does.