VAT Knowledge Makes for a Healthier Balance Sheet

If you don’t reclaim all the VAT you are entitled to, you could be losing hundreds of pounds a year. If that continues over a number of years, you’re looking at thousands. According to accounting software giant, Sage UK, reporting on the results of recent research, over a third of UK SMEs could make ‘significant savings’ on their VAT returns. More than half the business owners surveyed believed they might be around £500 or more better off.

Complicated Rules

The problem is the complexity of the VAT rules and the frequency of change. Busy entrepreneurs think they don’t have time to acquire the knowledge they need or to keep up with the changes. Having outsourced bookkeepers helps of course. It is part of their job to understand VAT and keep up to date. But they can only work with the information you give them, so it is important to keep careful records and proof of your purchases and expenses.

Mandatory or Voluntary Registration

The current turnover threshold for VAT registration is £79,000. If your business has not yet reached that level you don’t have to register, charge VAT, and pay it on to HMRC. But you may wish to register anyway as there are some advantages. Being VAT registered is seen as a sort of coming of age for a young business. It may attract more clients and customers because they believe you are more likely to have the experience and expertise they need.

Another advantage of initial registration is being able to reclaim VAT on many of your expenses in previous years. For goods you still hold, you can claim on purchases made up to four years prior to registering. This can include major asset purchases such as computers and other IT items, desks and other office furniture. It can also include the consumables you keep in your stationery cupboard.

Because you can only reclaim VAT on services bought during the six months prior to registration, there can be significant advantages to registering soon after setting up your business. Then you can reclaim on the legal and accountancy fees connected with the set-up, any services related to your premises and setting up your equipment, and so on.

Talking it Over Helps

Whether you are VAT registered, need to register or are just considering registration, it would be a good idea to discuss the implications of VAT with your bookkeepers. For those already registered or about to, you need to make sure you are or will be reclaiming everything possible, or whether it might be more advantageous to be on the Flat Rate scheme. If you are not sure whether to register before it becomes mandatory, discussing the pros and cons with someone independent of the company can often help you make the decision.

Could your Business Save Money on Energy?

Are you locked in to an energy supply contract in which you have to accept price rises? Has your initial contract been rolled over onto a new one without your knowledge? Many fixed term contracts for power supply include a clause that allows them to do this unless you notify them otherwise within a window of months before the end of the initial contract term. This could start three or six months earlier, but if your attention was never drawn to the clause you could be unaware of it, like many other small businesses.

Government Concern and Intervention

Prime Minister, David Cameron, recently confirmed that he has been concerned about this automatic roll-over practice because it “can lock small companies into paying above market rates”. His government set up a working group to try to get voluntary agreements to end roll-over contracts. The Federation of Small Businesses is cooperating with Downing Street on the issue because a quarter of its members have been “locked into contracts with un-negotiated price increases.” 

You and your bookkeepers may or may not be aware that energy regulator Ofgem has now set new rules for contracts with micro businesses. They will apply if you have fewer than 10 full time employees, or their equivalent, and your turnover is below £2 million. If you don’t fit this category but use less than 200,000 kWh of gas or 55,000 kWh of electricity, the rules will still apply.

The terms of contracts must be fully and clearly explained before you sign up to them. They must also be supplied in writing and include a statement of renewal terms. Suppliers must ensure that customers receive a reminder of this statement not more than 120 days before the end of the contract, so that they have an opportunity to research the market and decide whether to switch or renegotiate terms.

Big Six Response

Meanwhile the energy companies are beginning to respond to the government’s concern. The first of the major suppliers, British Gas, has pledged to abolish the automatic rollover of energy contracts for SMEs this September. The next to agree were npower and SSE, then EDF Power, leaving, at the time of writing, only E.On and Scottish Power of the six largest suppliers.

If you are within four months of the end of a fixed-term energy contract, whether or not you have heard from your power supplier, it’s time to look carefully at the small print, and consider whether you want to switch, continue as before, or renegotiate terms. If you are too busy, you could ask your outsourced bookkeepers to check the contract for you and give you their recommendations.

Do Not Lose Your Entrepreneurial Spirit

Can you remember how you felt when you first set up your business? How proud you felt and how determined to make a success of it? No matter how confident you were, there must have been some anxious moments. Since fear of failure didn’t hold you back, you had a truly entrepreneurial spirit. Everyone makes some mistakes, but you looked forward to being able to learn from them and carry on moving forward.

The Local Contributions of Entrepreneurs

Did you also want to make a difference in your local community, to provide jobs, useful products and services so that you could give something back as well as making a profit? There are lots of other ways that entrepreneurs contribute to society as well. Once your business was making money, you might have apportioned some of it to charity sponsorship. You could be supporting local schools and colleges with work placement offers. Educational institutions and sports clubs might run competitions with prizes you have donated. And of course you are meticulous about energy saving and recycling. While you are giving in this way, you could also be getting good media exposure, so don’t hide your light.

Good Customer Relationships

Did you cultivate your customers, remember things about them, listen to their feedback and act upon it? This is something that entrepreneurs are well known for. As your business has grown, you probably find this aspect more and more difficult, but the right technology can make it quick and easy to save and retrieve the customer data you need. It could be worth an investment in a customer relationship management system, plus staff training in the maintenance of data quality so that you know you can rely on it to give you accurate and immediate information when you need it. Your outsourced bookkeepers recognise the importance of this and will probably have a host of stories about the difference it can make to the bottom line.

Good Team Relationships

Entrepreneurs are good team builders and leaders. You are certainly aware that no staff team is static, but will change over time as individuals come and go. Your responsibility is to keep tabs on that, making sure that skills gaps are filled, newcomers are made welcome and brought up to speed quickly. If you have the reputation of being firm but fair and approachable, you should get the best out of everyone.

Flexibility and Adaptability

Unlike the cumbersome decision-making processes of big businesses, small business owners can respond to the markets and make necessary changes swiftly. If you have retained your entrepreneurial spirit, you will be keeping abreast of trends in buying patterns and business management, and adapting them, taking a willing workforce along with you.

All these characteristics are aspects of the entrepreneurial spirit that you can’t afford to lose. Consider them carefully if your bookkeepers are reporting any problems with income generation or cash flow.