<\/strong>As mentioned before, VAT is not truly an expense for yourself. (Debateable if clients are consumers) It is collected from your client. As your role of an unofficial Tax Collector. <\/p>\n VAT is collected upfront (hopefully) and is payable later for periods covering either 3 months or 1 year later, depending on your reporting period. This timeframe from collection period to submission as you can see provides an opportunity. Think of this VAT as a very short term interest free overdraft or credit card which you can use for cash flow purposes.<\/p>\n And many business actually do use this, no Jedi mind tricks here. But what many do wrong is forget that this is owed to the VAT, and soon!<\/p>\n Make sure that you know exactly how much is owed for each month! Don\u2019t wait for three months to pass!<\/p>\n With a good software or excel sheet if your starting out, this can easily be done. Budget for VAT, put this amount aside if necessary .Only use those funds if you\u2019re certain you\u2019ll be able to pay them back when your VAT is due.<\/p>\n Vat for beginners-another deadly mistakes to avoid<\/p>\n <\/strong><\/p>\n Another one in Vat for beginners-another deadly mistakes to avoid<\/p>\n Not collecting your debts has never been scarier. Just look at the below example:<\/p>\n A client of yours, still owes you \u20ac1,180 for services rendered 4 months ago.<\/p>\n Yet an invoice by yourself has already been issued. By law (unless you fall under the Cash accounting scheme) even if you haven\u2019t been paid by your client , you\u2019re still obliged to issue an invoice. VAT is collected on invoices issued. It doesn\u2019t make a difference whether the invoice has been paid or not by the client!<\/p>\n So this means that you owe the VAT department \u20ac180 (18% Vat on top of \u20ac1,000). Which is fine, had it not been for the fact you haven\u2019t collected this \u20ac180 yet!<\/p>\n Not only have you not been paid your \u20ac1,180 and covered your business expenses for that service, BUT you also have to fork out from your pocket this money not yet collected to pay the \u20ac180 VAT due!<\/p>\n Goes without saying that this can be disastrous for your cash flow! It could also choke to death your business in the long run. Imagine the amount invoiced and not collected was \u20ac23,360 instead! Then you would have to fork out \u20ac3,600 (18% Vat on top of \u20ac20,000) . What if the sum is even greater than that!<\/p>\n Collect your debts. Remember a client is someone who pays you! If not, it\u2019s doing work for free, and at a huge cost and loss!<\/p>\n Thirdly in Vat for beginners-another deadly mistakes to avoid<\/p>\n Just starting out at times means investing in and buying lots of Assets. Such as equipment, furniture , signage and furbishing costs, computers etc\u2026<\/p>\n Well the good news is you\u2019re likely to get a huge fat VAT refund for the input VAT paid on the above assets. So far so good. No big deal.<\/p>\n But there is a catch\u2026.and here is where you get knifed in the back if you\u2019re not properly advised.<\/p>\n The input VAT may be payable back to the VAT dept! If you close your business before 5 years or 20 years (depending on the asset) have passed or get rid of your asset!<\/p>\n Any asset amounting to \u20ac1,164 excluding VAT must be listed in the VAT box 30 as Capital Goods.<\/p>\n So what are \u201cCapital goods\u201d?<\/p>\n The VAT dept. classifies Capital goods as \u201c\u201call tangible fixed assets which can be used on a long term basis as working tools or other means used for the carrying of an economic activity\u201d with a value of over 1,165 Eur \u201c<\/strong><\/p>\n Which for VAT purposes have a life span of :<\/p>\n2.\tHaving to pay VAT still not yet collected<\/h2>\n
3.\tForgetting that VAT on assets is payable back if you close your business<\/h2>\n