VAT can trip you up, with expensive consequences. Here are five situations where it is easy to get the VAT treatment wrong.

  1. Services purchased from abroad (e.g. online advertising from a business based in Dublin) won’t show UK VAT. But you do need to calculate the VAT and include it on your VAT return in boxes 1 and 4, with the net amount of the invoice included in boxes 6 and 7. This is referred to as a ‘reverse charge’ situation.
  2. If you don’t have a valid VAT invoice, you should not reclaim VAT on the purchase. You can sometimes use alternative evidence, such as a supplier statement, but HMRC can refuse to accept this. Chase up any missing invoices before you submit your VAT return.
  3. VAT can’t be claimed on entertainment costs (other than staff entertaining). Taking a customer to lunch is business entertaining, so you can’t reclaim the VAT on that meal. HMRC regard most jollies, such as tickets to sporting events, as entertainment. There is a limited exemption if your customer is not based in the UK.
  4. When you take a deposit from a customer on accepting their order, you have to account for the VAT at that point, and not wait until you have issued a VAT invoice for the full amount due.
  5. When importing goods, be sure to retain the C79 certificate, as this will show the VAT that can be reclaimed. You also need to download your postponed import VAT statements every month through your customs declaration service (CDS) account.

Please ask us to clarify any issues about VAT. It’s better to ask than to get it wrong!