5 simple VAT mistakes to avoid

18 March 2020

VAT today can be a minefield for many businesses. What started as a simple tax, is now a myriad of mind boggling rules and regulations.

Many business owners will, at one point or another, face a VAT inspection and will dread it. HMRC have been taking a more targeted approach in the last few years. VAT can be complex, depending on how many transactions your business has and the type of business it is.  There are some standard issues that apply to most businesses HMRC usually check.

Have a look at the top 5 with tips on how to avoid these simple VAT mistakes.


Many businesses often apply the wrong treatment to supplies that are not everyday occurrences. It’s easy to get VAT right on core business supplies but non-standard supplies are often an area that businesses make mistakes. These can be simple things such as property letting, supplies to staff or inter-company management charges.


We often see businesses caught out in this area. HMRC regulations state that businesses are forbidden from recovering VAT on entertaining anyone other than current employees of the business. Entertaining is a common cost for small businesses, but, be wary of the rules, and don’t reclaim on the money that you spend in this area. You need to ensure that input tax is not claimed when taking a customer, third party or prospect out for dinner.


Fuel used for business purposes is often an area of error. It’s important to remember to restrict the proportion of fuel used purely for business purposes. You’ll need comprehensive mileage records to back any claims.

You can use fuel scale charges to work out how much VAT to pay back on fuel if you use a business car for private purposes. This means you do not have to keep detailed mileage records. Often VAT inspectors pick up on businesses where they’ve misused VAT fuel scale charges.


You will need to demonstrate that a car is only used for business purposes if you want to recover VAT on the purchase. There are very strict conditions around the use of these cars to prove that it cannot be used for personal use.

HMRC will disallow VAT recovery on the purchase of a car for use in the business, unless it can be demonstrated that the car is, and can only be, used exclusively for business purposes. VAT can only be reclaimed on a pool car, where it can be demonstrated that the strict conditions around their use are met.


With many businesses now trading across the globe, overseas suppliers should not charge UK businesses VAT.  Rather, the UK customer should account for VAT on the value of supplies on their VAT returns under the reverse charge procedure. The value of these supplies also counts towards the registration threshold.

This can have a detrimental effect for businesses that are partially exempt as it can result in an input tax restriction.

VAT needs to be kept in mind to ensure you review your VAT position effectively throughout the year. This will help to avoid unnecessary penalties and unnecessary stress and issues if you face a VAT inspection.

We’ve got decades of experience in helping our clients with VAT inspections and answering VAT questions.

Get in touch today if you need any help.

Contact Chris Wilson or call 01604 273782