Guide to VAT Compliance for Manufacturing Businesses
Taxes, as well as their associated rules and regulations, should be on the radar of every manufacturing business. None more so than value-added tax (VAT), considering the number of aspects of the manufacturing process that VAT is taxable on.
In this guide, we’ll discuss what VAT is, with compliance is important and three VAT compliance challenges for manufacturing businesses.
What is VAT?
Value-added tax is a type of tax payable on goods and services. It’s levied at each stage of the supply chain where value is added to a service or product.
If your manufacturing company has a monthly turnover of more than £83,000 in the last tax year, you must register for VAT. After registering, you need to ensure you comply with VAT by documenting and adding VAT to every transaction you make.
Why is VAT compliance important?
Complying with your value-added tax obligations isn’t a choice. It’s a mandatory part of operating a business, enforced by laws and regulations.
As with other taxes, non-compliance with your VAT obligations is illegal and can have serious consequences for your manufacturing business, including expensive fines and penalties, criminal investigations, damage to brand reputation and even business closure.
3 VAT compliance challenges for manufacturing businesses
- Calculation based on trust
When it comes to VAT compliance, total responsibility is placed on your shoulders. HM Revenue & Customs trust your business to accurately calculate and pay what you owe, on time and in a specific way. If you get this wrong, your business could face huge consequences.
That’s why it might be wise to enlist the help of external specialists. Tax and accountancy experts can help you ensure accurate and timely VAT tax determination, giving you the peace of mind to focus on the core activities that are most important for your manufacturing business.
- Cross border trade
Complying with your VAT obligation becomes more difficult if you trade internationally. You need to understand how to process invoices, and calculate and report the correct amount of VAT with respect not only the rules in your business’ country of residence but also those of foreign nations. If you don’t have expertise or experience navigating international tax regulations, then this can seem like a near-impossible task.
- Changing regulations
Changes to rules and regulations are inherent to the tax world. In any given year, there are countless changes to tax rates, rules, regulations and logic. And this is even more true where international taxes are concerned. This makes managing your VAT compliance complex as there are so many taxable aspects of the manufacturing business. Staying on top of these changes and understanding them well enough to comply with them accurately and on time is a huge undertaking.
Ensuring VAT compliance for your manufacturing business is a difficult task, containing numerous significant challenges. All the same, it’s a non-negotiable if you want to prevent your business from being subject to serious consequences.
