Accounting software and MTD
Most accounting software programs have the ability to produce a report of the VAT transactions within a given period. Now the HMRC has gone down the path of linking returns directly to the software then VAT returns (https://www.gov.uk/government/publications/vat-notice-70022-making-tax-digital-for-vat/vat-notice-70022-making-tax-digital-for-vat) are now submitted to the government gateway. At the moment they are just grabbing the totals of each VAT box but no doubt in time they will then want access to the entire ledgers to see how those figures are derived. This then allow them full access to your accounting system which from their perspective would limit the opportunity for fraud but also encourage business to get it right the first time.
All this might be well and good, but it can be difficult to know exactly what you VAT bill will be until it comes creeping up on you. Even when you have 5 weeks after the end of your VAT quarter (or month if you have that option) by the time you have done your bank recs, got all your invoices and close the period, it’s only then that you know you need to pay. If customers don’t pay in time, or you have an important bill to pay that may leave you cash short to cover the VAT.
Using VAT Planner
In order to pre-empt these problems, I designed this 3 month cashflow planner (https://it-ebs.co.uk/downloads/) , so you put an invoiceable amount for the month for a customer. You then put in your outgoings and decide whether VAT applies (utilities maybe 5% whilst materials are at 20%). You put in your starting balance at the beginning of the first month and it calculate the expected incomings and outgoings for that month then carries the ending balance forward to the following month and so on for four months until calculates the VAT component at the beginning of the 5th month. This then warns you of the amount you should set aside to cover that liability. If you on standard accounting or cash accounting this is till the same anticipated amount. As the months progress you fill in the actuals and see how close you are to the target. If it is different, it will either be delayed receipts or unexpected payments, either way you a measure to see how accurate your assumptions (https://it-ebs.co.uk/news/using-vat-advantage/)are and then you can make a more cautious or optimistic budget next time. At least this gives you a plan (Cashflow Forecast – Vat? | UK Business Forums) of what may be and what to aim for and adjust to reality from there.
Compare Budget to Actuals
I use this myself and things never go to plan but if I have a customer hasn’t paid in time, I can then look at my suppliers and see if they can wait a bit for theirs. If you communicate in advance and explain the situation most people are amenable if they know what date you can clear it down, then they can plan themselves. If you don’t communicate and they start chasing, then they are less understanding. The future is always unpredictable but at least this tool gives you then insight of the consequences of certain scenarios and then duck and dive as well as keep the VAT man happy. Any feedback on this please let us know at [email protected]