10 ways to pay less VAT

Updated on May 24, 2022

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1 Choose the best VAT Scheme for your business

Standard VAT Scheme – on this scheme the VAT is based on tax points from invoices

Flat Rate Scheme – try our calculator

Flat Rate Calculator 2

It is possible to use a Cash Accounting Scheme for VAT if your turnover is less than £1.35 million and your customers pay you on slower terms than you pay them.

Those with a VAT revenue of less than £1.35 million can join the Annual Scheme and file only one annual return, but they must also make nine interim payments or three quarterly intermediate payments during the year.

As the name suggests, retail VAT Schemes are designed to address the issue of mixed vat-rate goods.

In the case of the sale of used cars, the VAT on the margin is calculated in accordance with a system known as the “margin scheme.”

2 Claim Pre-registration VAT

A time limit is imposed on backdating claims for VAT paid before VAT registration. The following time period begins on the day of your registration:

For items you still own, or that were used to manufacture other goods you still own, it will take four years.
a period of six months during which services are provided
See this blog for further information on how not to exaggerate. http://stevejbicknell.com/2015/06/24/preregistration-vat-confusion/

3 Property Investors might benefit from a Development Company

Residential property rentals are exempt from VAT because they are a provision of goods and services.

You may be able to save money on VAT by putting up a Development Company or hiring a building contractor for large-scale projects.

Assuming you hire a builder, this is what you’ll get

In VAT Notice 708 Buildings & Construction, you will find the VAT rules.

Converting an existing building into a new one may qualify for a reduced VAT rate of 5 per cent.

a residence for a single family
differing numbers of ‘one-person homes’
facilities designated purely for “relevant residential purposes” that are “multiple occupancy dwellings,” such as bed-sits.
Because your contractor is VAT-registered, they can refund the VAT they were charged and then charge you VAT at a 5 percent rate. –

When renting out property, you can’t take advantage of the 5% rate if you undertake all of the work on your own.

All VAT paid by your Development Company is refundable if it is VAT-registered.

4 Do you need to charge VAT on Intercompany Charges

In some cases, charging VAT is advantageous because one company is VAT-registered while other linked companies are either exempt or not registered for VAT.

VAT does not apply to the following:

Notice 700/34 to All Directors of the Board of Directors (May 2012)

Notice 700/34 – Joint Employment (May 2012)

On behalf of a business associate, paying a bill.

Insurance

5 Use VAT Groups for Business Acquisition Costs

Essentially, HMRC does not allow Input VAT on Investments to be claimed.

To give you a well-known example, the Court of Appeal validated BAA’s acquisition of Airport Development Investment Limited in February 2013 after it bought it in June 2006.

However, HMRC refused to reimburse the BAA VAT group for the VAT (£6.7 million) paid on the acquisition costs because they believed ADIL had not made any further taxable supplies, hadn’t demonstrated any intention to make taxable supplies, and wasn’t part of the VAT group at the time costs were paid.

BAA purchased ADIL through an SPV (Ferrovial), however the SPV was not integrated into the BAA VAT Group until September 2006, three months after the acquisition.

There are a few things to take away from this:

A VAT group should be joined right away when the acquisition is completed, and the SPV’s intention to join should be made clear in any correspondence.
Think twice before using an SPV.
Invest in the Assets rather than the Shares.
Establish the SPV’s ability to levy taxable management fees.
As a general rule, HMRC may refuse recommendations based only on passive stock holdings.

6 How Hotels save VAT

Tax examples for hotels — HMRC Notice 709/3 (October 2011):

The Long-Term-Stay Policy

Your establishment should only charge VAT on the non-accommodation portion of a guest’s bill if he or she has been staying for more than 28 days.

Meeting Rooms and Refreshments Exempt from VAT

A room rental or shop or display case rental that is typically exempt can be standard-rated by opting to tax; see Notice 742A for further information. Land and structures will be taxed instead.

The Deposit Tax

The vast majority of deposits are considered advance payments, and as such, VAT must be accounted for in the return period in which the payment was received. Refunding a deposit can allow you to collect whatever VAT you’ve already paid in your next tax return.

In most cases, VAT is not charged when a guest cancels a reservation and is charged a cancellation fee.

7 VAT on Pool Cars

For the most part, you can’t reclaim VAT while purchasing a car. When the car is primarily utilised for one of the following purposes, there are some exceptions:

A cab for self-drive instruction
Leasing a vehicle for business reasons usually entitles you to recoup 50% of the VAT you paid. It’s possible to reclaim all VAT if the vehicle is utilised solely for business purposes.

8 Use a Tronc for Tips

When provided in a spirit of generosity, tips are exempt from VAT. Regardless of the circumstances, this is the case:

If the consumer wants the money added to their bill, they can pay with a check or a credit/debit card, but if they don’t, it won’t be given to the personnel.

Service costs at restaurants are considered part of the cost of the meal and are therefore included in the cost of the meal.

To avoid paying VAT, customers must have a meaningful choice about whether or not to pay service charges, even if they show on the invoice (even if they are included).

Notices 700 is a good place to get more information. 709/1 Catering and takeout food and the VAT guidance

9 Get your TOGC right – Transfer of a Going Concern

An suitable VAT rate will often be applied to the sale of an organization’s assets if it is VAT registered or registerable. If you’re selling a business as a going concern (TOGC) for VAT reasons, you’re actually selling a business that includes all of its assets, which must be treated as such by virtue of specific circumstances. Unless the sale falls within the definition of a supply exempt from VAT, VAT will not be charged.

It’s critical to remember that following the TOGC guidelines is a requirement, not an option. As a result, it is critical to determine at the outset if the sale is a TOGC or not.

It is necessary to have:

if the seller is a taxable person, the buyer must be a taxpaying entity or become one as a result of the transfer in respect of land that would be standard rated if it were supplied, the purchaser must notify HMRC that he is a taxpaying entity or become one as a result of the transfer in respect of land that would be standard rated if it were supplied.
The TOGC guidelines must be followed at all times. There is no way to ‘opt out’ of these services. Because of this, it is imperative that you find out right away if the company is being sold as a TOGC. HMRC may take corrective action, which could result in a penalty or interest, if the treatment is incorrect.

10 Choose the best time to register for VAT

You have the option of voluntarily registering in order to recuperate VAT you paid out when starting your firm or waiting until you are required to register in order to get an advantage over your competitors.

If any of the following applies to your business:

Your VAT taxable turnover exceeds the ‘threshold’ of £82,000 You can anticipate to exceed the £82,000 threshold in a single 30-day period if you receive items from the EU worth more than that in a 12-month period.