'In reality, many businesses are still unsure as to what transactions input tax can be claimed on. As a result, they're passing up an opportunity to claim deductions that'll put much-needed cash back into their business,' explains FSP Business.
But your company can avoid this mistake by understanding some general rules that apply to claiming input tax.
Five general rules your company can apply when it comes to claiming input tax
Input tax general rule #1: You must have a valid tax invoice for the transaction or a bill of entry for an import.
Input tax general rule #2: You can claim input tax on any item you buy or any expense you have, as long as it's used in the course of your Vat registered business. For you to claim, your suppliers must have been charged Vat on the transaction.
Input tax general rule #3: If you've claimed input tax on a tax invoice and you haven't paid your supplier within 12 months of the date of that invoice, you have to 'add back' the input tax. 'You will have to include that specific Vat amount as output tax in block 12 of the relevant Vat return,' explains the Practical Vat Loose Leaf Service.
Input tax general rule #4: If you discover you haven't claimed Vat back on some back invoices, you can still do so as long as it's within five years of the date of that invoice.
Input tax general rule #5: You can claim input tax on second-hand goods you buy for your business. This is known as notional input tax. 'You will, however, need to keep a record of the details of the person who sold the goods to you, a description of the goods and the amount you paid for it. The Vat 264 declaration takes the place of a tax invoice,' explains the Loose Leaf.
By following these general rules, you'll know how to boost your company's cash flow by claiming input tax.