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5 Common VAT Mistakes Every Small Business Should Avoid

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Being VAT registered is beneficial to small businesses in many ways. Reaping the rewards while staying compliant with the law depends on accurately completing VAT returns, and that’s easier said than done.

Here are five of the most common errors businesses make on returns:

1. Failing to Register for VAT

All businesses with a turnover of more than £85,000 per year must be registered in order to charge VAT. Once registered, you’ll be expected to charge it on all of your sales. But if you don’t register to begin with, you won’t be able to charge VAT at all. It’s one of the many mistakes that could land you in hot water with the HMRC, so make sure you’re on board from the start.

2. Not Keeping Sales Records

Keeping your business sales records for as long as required by law is vital. This must include all your sales invoices, delivery notes and other receipts. Failure to keep adequate financial and sales records could result in a fine of up to £3,000 or a year in prison.

You can use a receipt book to record the exact time and date that you issue a receipt, which is definitely the way to go for businesses that don’t have a Point of Sale. It’s also recommended to use a receipt scanner to help you file your receipts digitally. 

3. Charging VAT on the Wrong Things

It’s easy to make a mistake when claiming back what you’re owed when you’re too busy or simply because you’ve made a simple error. The biggest mistakes people make include classifying something incorrectly or failing to include a VAT element in an invoice. Remember, any time you use a service or pay for something that isn’t exempt, you’ll have to add VAT to the cost, which you’ll then claim back.

4. Getting VAT Rates Wrong

Assuming that you sell enough products to qualify for zero or reduced VAT as soon as you hit the threshold is a good way to make this error.

In general, the VAT you charge customers is related to the VAT that you pay when buying business products and services. For example, if you buy a piece of equipment like a computer and the VAT is 20 per cent, you can charge your customer 20 per cent VAT. If you get it wrong, you’ll be committing an offence.

5. Mistaking VAT Due on Repairs and Maintenance

VAT isn’t charged on work that’s classed as ‘maintenance, repairs or servicing’. So, if your business is registered for VAT and your customer doesn’t provide a VAT invoice, you won’t need to charge this tax.

But if the work you’re carrying out is classed as ‘repairs’ or ‘maintenance’, and you’re charging VAT on top, you could be making a big mistake. Don’t assume your business is exempt if you’re not sure. You can find out more about whether or not you need to charge VAT on repairs by asking your accountant or bookkeeper.


Avoiding these common small business VAT mistakes stops businesses from creating problems for themselves. As long as you keep up-to-date with what’s required by law and keep accurate records, you’ll have less chance of falling foul with the HMRC. If you’re not sure what your obligations are, speak to your accountant. As your tax agent or accountant, they’ll be able to help you keep on top of your VAT obligations.

When it comes to reliable accounting and bookkeeping services, BarrettStacey Accounting is the one to call. We are a team of skilled and approachable accounting professionals providing all the services you’d expect from a traditional accountancy firm but on a fixed fee basis. You’ll never have to worry about any unexpected expenses when dealing with us. 

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