Two Key Questions That Will Help You Get the Most From Your Tax Return

21st February 2016

Nobody likes filing tax returns. (Okay, except maybe us accountants.) But skipping out on filing day is not an option for business owners like you who want to continue doing their great work. And, if you believe it, understanding the ways you can benefit from tax returns makes the whole process a lot more fun.

Even though the HM Revenue & Customs (HMRC) declared in 2015 that there are some reasonable excuses for missing deadlines that will keep you clear of the £100 late fee, is it really worth the headache?

Here are two key questions that business owners often ask – and the answers might motivate you to spend a little extra time on your return.

What is value-added tax and why does it matter?

Value-added tax is an indirect consumption tax levied by the national government. VAT is paid to the government by the seller of goods – that is, by businesses – on behalf of the consumer, and the consumer pays the seller.

HM Revenue and Customs (HMRC) administers and collects VAT to and from registered businesses and some imported goods and services. (Fun fact: It’s actually the third largest source of government revenue.) The standard rate for this consumption tax is 20%, with exceptions for a few particular goods and services (printing materials are not one of them).

So how does VAT relate to your business? Any business that sells taxable goods or services whose revenue is greater the VAT registration threshold must register. Registered businesses must charge their customers for the value-added tax on the full sale price of all non-exempt goods or services, then pass it along to HMRC upon filing. The tricky part: Businesses offset this amount (aka output tax) with the VAT they’ve paid for goods and services purchased for the sake of the business (aka input tax).

Sound messy? There’s an alternative option called The Flat Rate Scheme that allows businesses to pay a fixed percentage instead – but we won’t go into it.

Understanding what’s VATable is important for accurate bookkeeping and more efficient accounting – but it can also save you a few pennies, offsetting your output tax with your input tax. In short, knowing what’s VATable allows you to charge your customers correctly and reduce the taxes you pay to HMRC. And that is always a good idea!

What is business rates relief and how do I know if I qualify?

Business rates are the charges on most non-domestic properties, like the office, retail space or warehouse that your business might be operating out of. Your local council is responsible for sending your business rates bill each year and for answering inquiries you might have about the bill or your eligibility.

While exempted buildings and empty buildings automatically qualify for business rates relief and are automatically applied by your local council, there are some types of relief that you have to apply for. You can apply for the following types of relief:

  • small business rate relief, if your business operates on a single property and that property’s rateable value is less than £12,000
  • rural rate relief, if your business is the only village shop, post office, public house or petrol station, and the rateable value is low enough
  • charitable rate relief, if you are registered as a charity or CASC and 80% of the property is used for charitable purposes
  • enterprise zone relief, if you start in or relocate to an enterprise zone
  • retail relief, if you occupy a retail property, your rateable value is less than £50,000 and your local council offers it

There’s also a chance you can qualify for a temporary reduction in business rates if your business’s premises are affected by a severe disruption such as flooding, building or road works (though let’s hope that you haven’t been negatively affected by a major disruption like these).

The more you understand the responsibilities and reliefs that apply to your business, or at least, the more your accountant understands them, the more fun and rewarding it is to file taxes. And since you have to do it anyway then, well, shouldn’t it be as fun and beneficial to your business as possible?

We certainly think so.

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