VAT tips for bookkeepers

aat comment

In theory electronic filing of VAT ought to be painless.

In practice it’s dogged with glitches, oddities, and opportunities to upset HMRC. Here Paul Bulpitt, head of accounting at Xero and co-founder of The Wow Company, gives us his top tips for making VAT a doddle.

Paul, what do people do wrong when filing VAT electronically?

There are three big errors. The first is leaving returns up until the last minute. People suddenly run out of time! Second, their records aren’t up to date. This means they are unable to file a complete return. And third, I’m not sure how to put this politely… HMRC’s system is a little “old fashioned”. For example, when people file and go to pay it isn’t clear how to do it. It might sound daft, but it’s just not straightforward. So they Google “How to pay VAT” and end up using the wrong reference number,which could lead to a letter from HMRC for non-payment.

Can you give us a few solutions?

On the most basic level we get people to set up a calendar reminder for their quarterly return. It might not sound like the most technically advanced advice, but it is actually quite effective. Secondly it’s to set up a Direct Debit mandate with HMRC. Then there’s no more worrying about how to pay. The money just comes out of your account. Of course, you need to make sure that there’s enough money in there.

And for improving record keeping?

Automate as much as possible. This speeds things up. An accounting package should make sure you can do a lot of the work as you go. A plumber should be able to finish a job at a client’s house and then email a receipt there and then, with a Pay Now button on it so it is settled as soon as possible. I personally forgot to pay a window cleaner recently. He put a paper invoice through our letter box, and I took longer to pay than I should have because he made it hard. He should be emailing an electronic invoice, which then automates the accounts.

What about those tricky bits of paper, like expenses receipts and paper issued invoices?

Scan them in. We recommend Receipt Bank, which allows companies to take a photo of paper forms. Receipt Bank inputs the data, and automatically categorises it.

What technical errors do people make with VAT?

Not knowing what they can and can’t claim for. For example, there is no VAT on train tickets or postage. Also, entrepreneurs can claim VAT on stuff they bought for the business prior to registering their company.

How can errors be minimised?

Get a second pair of eyes to look over your work. This is particularly important when you first start out.

Also, to make sure you don’t miss anything it really helps to connect your bank account to your accounting package. It means you can tell which invoices have been paid, and reminds you of things like mobile phone bills which you don’t receive an invoice for.

Is it easy to correct errors?

No! Honestly, it is an absolute pain. That is due to HMRC. But there are ways to deal with mistakes. For example, if you find an old receipt that should have been accounted for six months ago just include it in your next batch. HMRC are far more worried about you messing around with income than expenditure.

Can the cloud help?

I would imagine the most popular software for VAT returns is Excel. By a country mile. But if you use an accounting package you won’t have to deal with HMRC’s own interface. It will be filed automatically. At a low monthly cost, there are lots of tools out there to help you organise your accounts and file VAT, but millions of small businesses are still not using them.


Charles Orton-Jones is a journalist, specialising in features on technology, FinTech, entrepreneurs, and politics.

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