Reclaiming VAT 'stumps small companies'

More than one in three smaller businesses are missing out on significant cash savings by not claiming back VAT, often because they don’t understand the rules associated with the tax, a study has found.

Even worse, at least half of such owner-managers estimate they are down by more than £500 a year due to not knowing every item that VAT can be recouped on, said Sage, which commissioned the study.

While the business-owners tended to realise that everyday items for the office were tax deductible, such as stationery and printer ink, other purchases, such as petrol, were more likely to go under the radar.

That may explain why travel, including that by car, emerged as the owners’ biggest cost - ahead of “food and refreshments” which, like fuel, are also VAT reclaimable, assuming a business context.

"Businesses that aren't claiming back the VAT they are entitled to are really putting themselves at a competitive disadvantage,” said Lee Perkins, managing director of Sage’s small business unit.

“Despite being around for 40 years, the ever-changing nature of VAT has put many business owners off from digging into VAT and fully understanding what can be refunded.”

According to the findings, the complexities around reclaiming VAT sees 36% of owner-managers miss out on savings, while 52% think that such negligence costs them, and their business, hundreds of pounds each year.

Editor's Note: Further Reading - Contractors' Questions: How to pocket a VAT surplus?

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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