SERVICES

Cost reduction and VAT cashflow management

Most businesses have cost reduction as a vital cornerstone of their business strategy. Businesses that are fully taxable for VAT purposes, i.e. those that generally fully recover VAT on costs, often overlook VAT during cost reduction exercises. However even fully taxable businesses can generate significant P&L and working capital savings if this area is reviewed in detail.

Cost reduction exercises focused on improving cash flows and working capital essentially centre on accelerating the time at which VAT is recovered on costs and decelerating the time at which VAT is paid on revenues. There are a number of ways in which this can be achieved depending on the nature of the transactions undertaken by the business.

Examples include the following:

  • Making an accrual for input tax (based on actual invoices held). This enables the business to recover input VAT on costs that have not yet been approved within the accounting system but where the valid VAT invoice is captured within the system.  This does not require HMRC approval
  • Input tax estimation – this relies on a provision within the VAT legislation enabling businesses to estimate figures on their VAT return where required. With HMRC’s agreement, it is possible to uplift the input VAT figure by a fixed % each period (reversing next period and replacing it with the current figure).   This provides a one-off injection of cash to the business.  We find that most large businesses typically recover 25-35% of their input VAT late as a result of workflow processes within the accounting system and queries with supplier invoices.  We can help identify an appropriate % and obtain HMRC agreement on your behalf
 
RECENT PROJECTS INCLUDE:
 
 
  • Reviewing historic staff expense claims to identify under-recovered VAT, prepare refund claims and put processes in place to ensure VAT is recovered on a current basis going forward (UK media group)
  • Input tax estimation % agreed with HMRC generating significant injection of cash for business (FTSE 250 outsourcing company)
  • Advising on the optimum structure to engage with corporate travel agents and event management companies to ensure trapped VAT costs are not incurred unnecessarily (pharmaceutical business, various event management companies)
  • Filing 8th and 13th Directive VAT refund claims for clients to recover overseas VAT incurred (various clients, ad hoc industries)