Make VAT work for you: you can turn a problem into an opportunity
Innovative products aimed at helping businesses deal with their tax commitments could unlock capital that can boost your bottom line.
When your business has to register for VAT, it’s a real threshold moment for many.
On one hand, it shows you’re a serious business with serious turnover: it may have taken years to build up to this point. On the other hand it may be that you’ve started your business with VAT already in mind and registered straight out of the gate.
Either way, right now, VAT is likely more of a problem than an opportunity – but that could be about to change.
When you register for VAT you essentially become a tax collector for HMRC: you charge a markup on products and services that you offer and every quarter, pay this to the government. In return, you get a refund on any VAT you have paid out on business expenses.
It’s quite a cumbersome process of calculating who owes how much, paying in and claiming back. As well as putting the burden on the business to make sure they’ve got their numbers right (and penalties if you get it wrong), businesses face what can be a hefty bill every quarter. This can cause cash flow problems and hurt your business.
Fortunately there are ways to make it easier to work out monies owed and owing; there may even be a way to take advantage of the pay in / refund system that could put a little more cash into your business.
Making your calculations easier
The old school way to do it is to use a spreadsheet: it’s a bit of work, but if you are in the habit of adding all your numbers into the spreadsheet as you go, you’ll have the numbers you need easily to hand when you complete your VAT return.
Alternatively, a VAT calculator is a software application that can help you work out the VAT on your sales and purchases, saving you the time and money you would otherwise spend on doing this manually.
This calculator may already be part of your existing bookkeeping software: if it doesn’t, consider moving to a system that does provide this feature.
You may also wish to work with a VAT accountant: they will help you set up a VAT system and calculate your VAT on a regular basis.
VAT owed, VAT owing… where’s the opportunity?
One of the problems we often hear from businesses is that they have been turned down for funding from their bank. Others are hesitant about borrowing to cover the investments they need to make in the things they need to grow their businesses.
Some or all of that money may already be in your account, but you either have to earmark it as a VAT payment or it’s owed to you as a VAT refund. If you are able to slow down the payment and speed up the refund, this money could be used to invest in growth. This is a potential game changer for your business as you may find you’re able to borrow less or not borrow at all to achieve your goals.
VAT finance can be used to smooth out payments for VAT. Rather than paying a lump sum every quarter, you pay a smaller amount each month. This is a short term, low cost form of borrowing; by spreading out the payments, you are able to keep hold of your cash for longer, making it easier to plan and invest that money back into the business.
VAT refunds are a product that pays your VAT refund into your account in as little as sixty minutes. If you’re used to waiting for weeks for a repayment, this can be a game changer.
If you were to use both of these products at the same time, you could find that you are able to hold onto your cash for long enough to invest in things that will see your profits more than outstrip the cost of borrowing. As an example, if you run a retail business, you could use the funds to boost your online marketing to boost your turnover. This would mean you sell enough products to cover the cost of borrowing and make further profit than would have been previously possible.
By taking a smart approach to funding, you can find products that suit your needs and make savings that mean you have to borrow less to achieve the growth you need to invest in.
Through our partnership with Swoop, we want to help every business owner with the tools they need to reach their goals. To get started click here.
© Cumbria Chamber of Commerce