If you are VAT registered and receive gratuities from your customer (eg, you may own your own restaurant, or a hairdresser’s salon) there is no need to pay VAT on these receipts. However, many business inadvertently pay VAT on tips because they use the sums they have banked to work out the VAT is due to HMRC. If tips are paid by bank card they inevitably get banked, so it’s easy to make a mistake.
If you’ve fallen into this trap it’s a relatively simple process to quantify the overpaid sums and claim a refund, and you can correct VAT periods which ended up to 4 years previously, so the refund due can be quite substantial.
Furthermore, if the overpayment is less than £10,000 the adjustment can be made through the current period VAT return, so there is no need to volunteer the reason for the adjustment to HMRC. Nevertheless, you must keep a proper record of the calculations underpinning the claim so that you can explain the entries to HMRC if they ask you to do so.
We can advise on the above and on how to keep your VAT to a minimum more generally. Call us today for a free consultation.