By Daniel Hunter
The margin for error in calculating VAT is causing a significant headache for tens of thousands of UK businesses, new research from business software and services provider, Sage has revealed.
More than a million firms in the UK reclaim VAT every month, yet research of 1,015 business owners found that one in five (21%) have made an error recording their tax or finances and 15% have had a VAT or self-assessment claim queried by HMRC.
The independent study identified that a fifth of companies [20%] are leaving themselves vulnerable to submitting incorrect VAT Returns by relying on manual processes, such as pen and paper and Excel, to make their calculations that are prone to human error. For over one in ten entrepreneurs (12%), reclaiming VAT is seen as their biggest business ‘headache’, ahead of health and safety regulations and business insurance.
The frustration for many small business owners is the time it takes to stay on top of their tax and financial reporting requirements. One in three (30%) respondents stated that reclaiming VAT either added ‘a fair amount’ or ‘significantly’ to their workload, which is time that could be better spent elsewhere.
Business owners have embraced software that can help them run core processes more efficiently and ensure compliance, such as payroll. Yet reclaiming VAT is one area that many still rely on time and labour intensive processes.
"Very few people start a business because they are passionate about VAT. But by not using the tools that are at their disposal, business owners are allowing VAT to become a time consuming headache, and more importantly leaving themselves open to error when submitting VAT Returns," Lee Perkins, Managing Director of Sage’s Start-Up and Small Business Division UK and Ireland, commented.
"VAT isn’t going away, it’s on the monthly to-do list so we’re encouraging business owners to look at this now and get on top of it ahead of their next submission. There’s steps they can take to mitigate the high margin for error revealed by our research.”
To give business owners and finance managers the confidence they need to tackle VAT, Sage has launched Sage 50 Accounts VAT Edition, which has a variety of features that simplify the process of creating and submitting VAT Returns, ensuring the accuracy of submissions at each step of the process.
The software guides owners through a step by step process for calculating, verifying and submitting VAT Returns online to HMRC and receiving and storing the submission receipt. This gives confidence to business owners that they have calculated and submitted an accurate VAT Return, and helps to free up time to focus on running their business.
Introduced in 1973, VAT is a tax that's charged on most goods and services bought in the UK and accounts for £100 billion paid to HMRC every year. All businesses that turn over more than £79,000 each year need to be VAT registered, and claiming back VAT on products and services can save significant money over the course of the year if understood properly.
Businesses under this threshold can also register for VAT voluntarily, and there are several benefits associated with this; for example, easing business deals and being able to reclaim VAT from the last four years of trading.
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