5 Best Practices to Optimise VAT Reporting

The Blue dot Team

If you pay attention to your VAT and have a clear strategy in place when it comes to being compliant, managing it effectively and ensuring it is filed correctly, then it can deliver value to your business.

How? Well, Ernst & Young found that if VAT is managed correctly and sits at the top of the strategic agenda, it can save the business significant money and time. How much money? Try 20,000 Euros per VAT number. That’s the estimated cost of filing, auditing, adjusting and managing VAT if it is a hurried necessity rather than a business priority.

First, it’s important to understand what VAT is and how to optimise your VAT reporting so you are compliant, efficient and ahead of the game.

First… What is VAT?

Value Added Tax, commonly known as VAT, is a tax placed on almost all goods and services a business sells to other businesses or consumers. The Tax Foundation describes it as a ‘consumption tax assessed on the value added in each production stage of a good or service. Every business that pays VAT for a part of a product or service gets a credit for their VAT Payments, but it is the business’s responsibility to ensure that their VAT is paid correctly and on time.

VAT is an integral part of business that must be carefully managed to ensure you comply with government taxes and regulations.

Second… What is VAT Reporting?

Your VAT report is essentially a breakdown of all the VAT relevant transactions your company has undertaken over a specific period of time. If you have registered for VAT, then you will be charging Output VAT and reclaiming VAT – known as Input VAT – which means you need to meticulously manage your VAT to ensure you are correctly reimbursed by HMRC, charge your VAT accurately, and complete your VAT returns correctly.

A VAT return provides you with all the information you need to manage your Input and Output VAT, calculate the amount of VAT you should pay or reclaim, and more accurately assess your VAT profile.

The key components of your VAT report should include:

  • Financial documents such as sales invoices and purchase orders with VAT clearly marked on them
  • Input VAT – the amount of VAT you have paid
  • Output VAT – the amount of VAT you have charged
  • VAT Balance – the difference between Input VAT and Output VAT
  • VAT reclaimed – on purchases and other items made during the period in question

Importance of Optimising VAT Reporting

Optimised VAT reporting ensures all your numbers are correct and this then translates into seamless VAT filing and accounting, which translates into a perfect VAT submission record. If you keep accurate records, then you will meet your VAT deadlines with the right paperwork and information.

You will also avoid unnecessary fines HMRC imposes on late or incorrectly filed VAT returns. Late VAT returns and payments are now subject to a penalty points system designed to make it easier for companies to manage their VAT returns and not face extensive fines and penalties for making a single mistake. The penalty point system issues one point to your company for every missed deadline. These points will expire after two years if you’ve not exceeded the penalty threshold. After that, you will have to submit your VAT returns and payments on time for a set period of time before your points are reset to zero.

Best Practices to Optimise VAT Reporting

If you want to stay on top of your VAT reporting, this is how to do it.

1. Maintain Accurate Records

You have to keep very accurate records when you are registered for VAT. These are all the items and services you purchased and sold, including all those items that are zero-rated for VAT, are subject to reduced VAT, or are exempt from VAT. This includes all your invoices, self-billing agreements, the details of all your self-billing suppliers, and the invoices you have received in digital and paper formats.

2. Use Automated Tools and Software

Work with a professional accounting software solution with built-in tools and functionalities designed to streamline your VAT admin. These tools will largely automate much of your processes and they will help you optimise your paperwork, filing and VAT returns. A trusted solution will ensure your VAT records are up-to-date and that you can access your information easily and quickly.

HMRC expects you to use an accredited accounting solution to submit and manage your VAT, so choose one with the right features to help you organise and streamline your finances. It will make VAT returns a lot less time-consuming.

3. Regularly Review and Update VAT Rates

Spend time inside your VAT online portal so you know exactly what type of VAT reporting structure you have – monthly, quarterly, annually, specialised – and what deadlines you need to meet. Make these deadlines part and parcel of your business life so you are always ahead of the paperwork.

4. Train and Educate Staff

Anyone who deals with customers, invoicing, admin and VAT must understand exactly how the process works and the importance of keeping meticulous records. Train and educate your staff on the importance of:

  • Collecting the right VAT invoice or receipt from the vendor or supplier
  • Ensuring the receipt includes all mandatory details 
  • Submission of reports by your employees 
  • Record-keeping, documentation, and reporting by your Finance and admin staff

5. Seek Professional Advice

Work with an accountant to manage your paperwork, filing, and VAT returns so the process is easy, accurate and up-to-date. They will also ensure your VAT reports are optimised and include all the right information.

Blue dot’s Solution for Optimising VAT Reporting

Blue dot’s AI-driven VATBox platform helps you gain an in-depth view of all your VAT submissions and transactional data so you can not only ensure the utmost accuracy and timeliness of VAT submissions but also maximise your VAT recovery potential. VATBox also offers insights into VAT trends within your business, benchmarks your company against disqualified requests, compares invoice data, ensures compliance, and reduces the risks of late or inaccurate returns. When added to all the benefits of our VAT reclaim calculator, our solutions help you manage your VAT returns, optimise your VAT experiences, and keep you on track and penalty-free. 

If you want to stay ahead of continuously updated VAT reporting requirements, reduce audit risks, and optimise savings, then it’s important to optimise your VAT process end to end. With Blue dot’s AI capabilities and built-in tax compliance engine, your can automatically analyse your invoices and expense reports, accurately assess VAT eligibility of any expense item, and ensure they are compliant with VAT taxation rule in each country. If you prioritise your VAT and recognise it as a strategic investment into your business, you can save significant money, improve your VAT compliance and manage your VAT reporting seamlessly.

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