VAT for architects: when it’s due and how to pay it!

We take a look at the HMRC rules for architects on VAT, and how short term finance can cover the cost to protect your business’s cashflow.

Architectural services in the UK are taxable supplies, charged at the standard rate of VAT.

As an architect, you must register for VAT once taxable supplies reach the current VAT threshold (more than £85,000, as of February 2020).

Whereas VAT or ‘output tax’ is applied to architectural services, ‘input tax’ (any VAT paid on purchases), however, can be reclaimed.

Every quarter practices are required to pay HM Revenue & Customs (HMRC) the difference between the output tax charged, and the input tax paid on your purchases.

Avoiding late payment

HMRC allows some time at the end of each quarter before a practice must pay the VAT due. VAT returns will show the payment deadline date, but you can also use the Government’s VAT deadline calculator.

Despite this, research shows that collectively, UK businesses owed over £3 billion to HMRC in overdue VAT payments in 2017/18, up from £2.48 billion in 2014.

One of the biggest factors causing late VAT payments could be the fact that architectural practices are seemingly waiting longer to receive payment from suppliers. Should a client pay late, the practice is still expected to pay VAT on those invoices, despite having less cash available to do so and this can often contribute to short term cash flow pinch points.

Essential obligations such as VAT, should not have to compete with a practice’s plans for growth, nor should it have any significant impact on cashflow. Careful planning, however, can ensure investment to expand and demands from the HMRC can be managed side-by-side, albeit, there are ways of supporting this, particularly via finance.

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Short-term loan to finance your VAT bill

Whilst all architectural practices will no doubt aim to keep enough aside to cover the cost of VAT bills, this isn’t always possible, and when working capital volumes don’t permit, practices need to look at alternative sources to fulfil these costs. Invoice Finance or VAT Loans are one such way of funding this expense and are becoming increasingly popular amongst architects.

At White Oak UK Europe, we continue to see year on year increases in the number of practices choosing a short-term loan to finance VAT payments.

Architectural practices can choose whether they wish for payments to be made directly to HMRC on their behalf, or to their account, but ultimately a VAT loan frees up capital for other practice requirements, by spreading the cost over 3 months and offering a quarterly facility to meet these ongoing costs.

For further information and advice, contact our team of experts.

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