Background

Amidst the current economic gloom, the need to maximise cashflow has never been more important. An often overlooked opportunity in cashflow planning is the savings which can be obtained in the area of indirect tax. These tax savings will often go straight to the bottom line and there follows an outline of some areas in which businesses can look to improve their cashflow.

Recovery of VAT

There are a number of key areas where a business can look to improve their VAT recovery:

• Ensure the VAT on employee expense claims is maximised;
• Review bad debts and ensure claims are made;
• Where there is a company pension scheme are administration costs being recovered;
• Are claims are being made to recover VAT incurred in other EU Member States.
• Review purchases to see where VAT has been charged incorrectly and obtain refunds from suppliers.

Accounting for VAT on Sales

For most businesses the time when the VAT on their sales becomes due is when an invoice is raised rather than payment is received. This can lead to the VAT being accounted for to HM Revenue & Customs before payment is received from the customer. One solution may be to consider issuing requests for payment and providing a tax invoice when payment is received. Self billing arrangements should also be reviewed to see if efficiencies can be made.

Imports

Where goods are imported into the UK from outside the EU, VAT and often Customs Duty will have to be paid before the goods can be released into free circulation. Although the VAT should in most cases be recoverable this will only be when the VAT return is submitted. Consideration should be given to applying for a “duty deferment account” which will allow the payment of the VAT and Duty to be deferred. There is a cost to such deferment, as a bank guarantee will normally be required. However, this cost can be reduced where a business qualifies for the Simplified Import VAT Accounting Scheme. There are also a number of arrangements which allow the VAT and Duty on imported goods to be relieved or suspended.

VAT Returns

The default position for most businesses is to submit VAT returns on a quarterly basis. There are a number of opportunities to improve cashflow by reviewing submission patterns.

• Where there is a seasonal pattern to sales, review the VAT return “stagger” so that the sales are at the beginning of a VAT Return period;
• For a business which is normally in receipt of VAT repayments, consider moving to monthly VAT returns;
• Groups of companies should consider the benefits of a group registration. Where a group is already in place, this should be reviewed to see if benefits could be found by changing the composition of the group.

Accruals

The timing of input VAT recovery is normally driven by the tax point on the invoice received from suppliers. However, businesses are not always able to process all invoices dated within a VAT return period in time to include them on the return. In order to avoid the negative impact on cashflow, it is possible to agree with HM Revenue & Customs a methodology for accruing for VAT that is proper to the period.

Unusual Transactions

A major VAT cost arises for many businesses when there are large one-off transactions which are outside the normal trading pattern, an example being those concerning land and property. It is important that the VAT consequences of such transactions are reviewed to ensure additional costs are not incurred due to a failure fully to understand the VAT implications.