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Don't be caught out on VAT

Shropshire businesses must file their VAT returns online from the start of the new financial year - and no-one is exempt.

Pam Mason, from Dyke Yaxley Chartered Accountants, in Shrewsbury, said: "Previously only newly-registered businesses and those with turnovers exceeding £100,000 had to file and pay VAT online.

"But from 1 April, all VAT-registered businesses must send their VAT returns online and pay their VAT electronically.  So it's vital that companies realise this deadline is fast-approaching and ensure they are ready in plenty of time."

Pam said companies should also take care when completing the online VAT return, particularly for the first time, as making a mistake could prove costly.

"Not only can mistakes lead to errors in the amount of VAT you're paying or reclaiming, but you could also face financial penalties unless you can prove you took 'reasonable care' when completing your return."

Pam warned that small businesses should be very careful as assets were often used for both business and private purposes.

"But it's important to remember that VAT can only be reclaimed in relation to business expenditure - so if you buy a laptop which you then used 80% for business and 20% for non-business use, only 80% of the VAT is reclaimable."

Another difficult area is VAT relating to cars and fuel - you can't reclaim input tax on the purchase price of most cars, and if you use a lease car for both business and private use, input tax recovery is normally restricted to 50%.

"Be careful too with business entertainment expenses as generally you cannot reclaim VAT on them.

"Input tax on business entertainment can only be reclaimed if the entertainment is provided to either employees or overseas customers.  So in practice, input tax on the annual staff Christmas party can be recovered, but charges associated with taking clients to the races can't.

"Problems often occur where business entertainment has been misclassified as marketing or advertising, and so overlooked.

"There are many pitfalls when filling in a VAT return, and now they need to be completed online, businesses must take even more care they don't trip up with just the click of a mouse."

Dyke Yaxley's Pam Mason