30th September 2011 is the deadline to notify HMRC if your business should be registered for VAT – that’s only two days away! The VAT Initiative applies to all businesses with a turnover of £73,000 or above and who have not yet registered for VAT.
HMRC is targeting more than 40,000 small businesses which it believes generate enough sales to push them over this threshold and into the VAT-paying bracket. There is a particular focus on sole traders, which may be eligible – knowingly or unknowingly.
Missing the 30th September deadline will result in penalties, further investigation by HMRC and possibly criminal charges. According to a recent Intuit survey of more than 500 small businesses, 31 per cent of those polled said that they have made a mistake in their dealings with HMRC.
If businesses make a full disclosure now, however, most will face a fairly low penalty rate of 10 per cent of net tax due, and in some cases there will actually be no penalty. However HMRC is coming down hard on businesses who are knowingly avoiding VAT payment and in some cases the penalty will be 100% of net tax due.
Rogue traders are giving small businesses a bad rep
Just a few rogue traders are giving small businesses – and certain industries in particular – a bad reputation. One of the benefits of being VAT registered is that it can raise the status and credibility of a small business with their potential customers. It’s an extra ‘tick in the box’ and provides an element of assurance and trust – customers feel confident knowing that the business has an audit trail and will not disappear overnight.
Poor record keeping is one of the top five reasons why businesses in the UK fail, so it is in small businesses’ interests to get their books into shape. This helps small businesses to avoid unnecessary fines, and more importantly it will help them to run their businesses more successfully.
Simple accounting software enables small businesses to be smarter about their finances, for example by taking advantage of cash forecasting benefits, such as invoice discounting and whittling out their ‘bad’ customers.
What can small businesses do now?
Small businesses need to review their books to establish annual total revenues, and whether they have exceeded, or are likely to exceed, £73,000 this year. HMRC is wise to the VAT-avoidance tactic of business separation and it won’t work. The sales from all businesses must be added together, and the total revenue sum cannot exceed £73,000.
With months of letters, ad campaigns and information being pushed at small businesses, HMRC will not accept the excuse of, “I didn’t realise I was eligible to pay VAT”. Following the initial VAT registration notification deadline of 30th September, 31st December will be the final deadline to send in the VAT application form with full accounting figures. So, small businesses must get their books in order, fast.
Of course if you’re not sure where to start and want some further advice please get in touch with your local Intuit ProAdvisor.