Annual VAT Adjustments

There’s some good news for businesses struggling with cash flow issues. If your business is making VAT exempt and chargeable sales, you have the chance to make an annual adjustment to the amount you’ve reclaimed on purchases. By doing so you have the chance to improve your cash flow or even reclaim more VAT.

Generally, you’re not allowed to reclaim the VAT paid on the cost of products or services which you incorporate in or use to produce goods or services that are VAT exempt. But purchase VAT, referred to by HMRC as input tax, on general costs tends to be linked to both exempt and VATable sales.

Annual adjustment

VAT return done at the end of the needs to be based on the proportion of input tax reclaimed for the previous twelve months as a whole and compare this to the amounts reclaimed each quarter. Any difference, whether this is extra VAT payable or reclaimable, has to be included in the next VAT return. This is called the annual adjustment.

The adjustment and dealings with VAT is complex, and this is where many businesses fall into the traps laid down by HMRC to catch VAT fraudsters. If you are unsure about the VAT of your business or any other matter involving VAT, do not hesitate to contact KVS Accountants. We have helped many small businesses as accountants in Southfields, Wimbledon, Earlsfield, Barnes, Wansdsworth and Hammersmith to overcome the difficulties in VAT


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