20 Apr 2015 10:28am

One in three SMEs could be breaking VAT rules

Some 36% of UK SME business owners are unaware of the VAT registration threshold, according to research from insurer Direct Line for Business

This amounts to more than a third of all UK based SMEs – roughly 780,000 businesses.

“When running a small business, it is important to remain on top of your finances and insurances,” said Jasvinder Gakhal, director of Direct Line for Business.

“Managing taxation and other obligations such as insurance, can appear complicated, however, there is a lot of useful guidance available.

“The HMRC website, for example, has information to help small businesses understand what they need to pay and when.”

The research also found that 9% of UK SMEs – around 122,000 businesses – limit sales in order to remain under the VAT threshold of £82,000. Additionally, 27% of those businesses limiting sales temporarily ceased trading to stay under that threshold.

Gakhal said, “Often entrepreneurs are so focussed on growing sales and managing day-to-day business operations, they overlook taking out the relevant insurance protections, or reviewing their tax obligations.

“To avoid unwelcome financial penalties and to reduce business risk it is important to read up about what you do or don’t have to pay as a business and identify if there are relevant insurances you can take out to reduce the impact in the event of an incident, such as fire, flood or theft of stock.”

A HMRC spokesperson said, "HMRC recognises the importance of ensuring businesses are aware of VAT and we work with them to increase their understanding of it.

"We offer small businesses advice in various formats including e-learning, online seminars and YouTube content. HMRC also offers small businesses various schemes to simplify VAT accounting such as the flat rate scheme.

"Around 20,000 businesses a month register for VAT and the overall size of the VAT register has increased over the last few years."

Oliver Griffin


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