VAT Saving Tips for Small Businesses

0 General,

As a small business owner, managing your finances is more than just tracking sales and expenses — it’s about making the most of every opportunity to save. One of the often-overlooked areas where small businesses can save significantly is Kent based accountants. Understanding how Kent based accountants work and applying practical tips to manage them effectively can boost your cash flow and reduce your tax burden.

In this post, we’ll walk you through some savvy VAT-saving tips that could make a real difference to your bottom line.

1. Know When to Register (or Deregister)

In many countries, you’re only required to register for VAT once your business reaches a certain threshold in annual turnover. For example, in the UK, the VAT threshold is £90,000 (as of 2024). If your business is below this threshold, you don’t have to register — and that could be a good thing.

Why? Because if you’re not VAT registered, you don’t have to charge VAT on your sales, potentially making your products or services cheaper for your customers.

But on the flip side, voluntarily registering for VAT can have benefits — especially if most of your customers are VAT-registered businesses. In that case, they won’t mind the VAT, and you can reclaim VAT on your own purchases.

Tip: Review your turnover regularly. If you’re nearing the threshold, decide whether it’s better to register early or wait until you must. If your business has scaled back, you might even consider deregistering if you’ve fallen below the threshold.

2. Understand VAT Schemes Designed for Small Businesses

Many governments offer VAT accounting schemes tailored for small businesses. These are designed to simplify VAT reporting and sometimes even reduce the amount you pay.

Common VAT schemes include:

  • Flat Rate Scheme: You pay a fixed percentage of your turnover as VAT. You can’t reclaim VAT on purchases (with few exceptions), but the rates are usually lower, and it simplifies paperwork.
  • Cash Accounting Scheme: You only pay VAT when your customers actually pay you, not when you invoice them. This helps with cash flow, especially if clients are slow to pay.
  • Annual Accounting Scheme: Instead of filing quarterly VAT returns, you file once a year. Great if you want less frequent reporting.

Tip: Speak to your accountant or tax advisor about which scheme is right for your business — or even combine them in some cases.

3. Claim Every Legitimate VAT Expense

One of the major benefits of being VAT registered is reclaiming VAT on eligible business purchases. But many small business owners miss out simply because they don’t keep good records or misunderstand what’s reclaimable.

Eligible expenses could include:

  • Office supplies
  • Computer equipment
  • Professional services
  • Business travel
  • Mobile phone bills (if business-related)

Even small purchases can add up. For example, VAT on a new laptop for your business could be worth reclaiming hundreds of dollars or pounds.

Tip: Keep detailed receipts and use accounting software or a VAT accountant to track and submit accurate claims.

4. Don’t Forget Pre-Registration VAT Claims

Did you know you can reclaim VAT on certain purchases made before you officially registered for VAT?

  • Goods bought up to four years before registration
  • Services bought up to six months before registration

There are some conditions (the items must be used in your business and still in use at registration), but it’s a fantastic way to recoup some startup costs.

Tip: Gather old invoices and receipts and talk to your accountant to ensure you don’t miss this opportunity.

5. Use Digital Tools to Stay Compliant and Efficient

VAT can get messy if you’re handling it manually. Mistakes can lead to overpaying, underpaying, or getting hit with fines. Fortunately, digital accounting tools like QuickBooks, Xero, or FreeAgent can automate a lot of the heavy lifting.

These tools help you:

  • Track VAT on all transactions
  • Generate VAT returns
  • Ensure you’re charging the correct VAT rates
  • Integrate with HMRC (in the UK) or your country’s tax system

Tip: Investing in good accounting software pays off in time saved and errors avoided. Plus, it gives you real-time visibility on your VAT position.

6. Review Supplier and Customer VAT Status

If you’re buying from VAT-registered suppliers, you’ll typically pay VAT — and reclaim it. But if you’re buying from suppliers who aren’t VAT-registered, there’s no VAT to reclaim, which can affect your margins.

Also, if most of your customers are individuals or non-VAT-registered businesses, charging VAT could make your prices seem higher. You may need to rethink pricing strategy or look into becoming more cost-efficient elsewhere.

Tip: Regularly audit your supplier list and customer base. It can help you identify potential savings or pricing issues related to VAT.

7. Check Your VAT Rates

Different goods and services have different VAT rates. For example:

  • Standard rate (e.g., 20%)
  • Reduced rate (e.g., 5%)
  • Zero-rated (e.g., children’s clothing or food in many countries)
  • Exempt (e.g., education or health services)

Charging the wrong VAT rate can lead to either overcharging your customers or owing back payments. And claiming VAT where it’s not allowed could lead to penalties.Tip: Double-check the VAT category for each product or service you offer. You might be entitled to use a lower rate — or required to use a specific one.

8. Plan Big Purchases Around VAT Periods

If you’re making a significant purchase (like new equipment or a vehicle), planning when to buy it can impact your VAT return and cash flow. For example, if you buy right before a VAT quarter ends, you can reclaim that VAT sooner.

This is especially helpful if you operate under the standard VAT scheme where timing matters.

Tip: Work with your accountant to time big expenses wisely and maximize your cash flow advantage.

9. Stay Ahead of VAT Deadlines

Missing VAT deadlines can lead to penalties, interest, and lots of stress. Late filing or payment — even by a few days — can cost you money and damage your relationship with tax authorities.

Tip: Set reminders or use software to alert you of upcoming deadlines. If you need more time, contact your tax authority in advance to avoid fines.

10. Talk to a Pro

VAT can get complicated fast, especially as your business grows or if you operate internationally. Having a tax advisor or accountant who understands small businesses can be one of the best investments you make.

They’ll help you:

  • Stay compliant
  • Find VAT efficiencies
  • Avoid costly mistakes
  • Plan smarter for the future

Tip: Look for advisors who specialize in small business tax or work with startups. They’ll understand your challenges and goals better.

Final Thoughts

VAT doesn’t have to be a burden — it can actually be an opportunity to save money and run your business more efficiently. With a little planning, the right tools, and professional guidance, you can stay on top of your VAT obligations and keep more of your hard-earned revenue.

Whether you’re just starting out or looking to optimize your current setup, these VAT-saving tips can help you build a leaner, more resilient business.

About The Author