Growth is usually a sign that things are going well. New customers, increasing turnover and opportunities to expand can all be positive indicators of success.

However, growth can also bring new challenges, particularly when it comes to VAT. What worked when your business was smaller may not be suitable as operations become more complex, and failing to address VAT issues early can lead to unexpected costs, cashflow pressures and HMRC enquiries.

Here are 6 key VAT risks growing businesses should keep on their radar.

1. Has your growth pushed you over the VAT registration threshold?

For many businesses, VAT registration becomes necessary sooner than expected. A large contract win, successful marketing campaign or period of rapid growth can cause turnover to increase quickly.

Failing to register at the right time can result in backdated VAT liabilities, interest and penalties, which can be costly for an otherwise successful business.

Regularly monitoring your taxable turnover can help ensure you register when required and avoid any unwelcome surprises once taxable turnover exceeds £90,000.

2. Are your new products or services creating VAT complications?

Growth often involves introducing new products, services or income streams. While this may be good for business, it can also create VAT challenges.

Different supplies can attract different VAT treatments, and assumptions can lead to mistakes. Applying the wrong VAT treatment could result in underpaid VAT, overcharging customers or challenges from HMRC.

Before launching something new, it’s worth understanding the VAT implications and whether any specialist advice is needed.

3. Have you considered the VAT implications of trading internationally?

Expanding beyond the UK can open up significant opportunities, but it can also introduce additional VAT obligations.

Depending on where and how you trade, you may need to consider overseas VAT registrations, imports and exports, or different rules for supplying goods and services across borders.

Getting this wrong can result in unexpected costs and compliance issues, so it’s important to understand the VAT position before entering a new market.

4. Is rapid growth putting pressure on your systems and processes?

As transaction volumes increase, the risk of errors often increases too.

Businesses that rely on manual processes or outdated systems can find it harder to maintain accurate VAT records and reporting. Common issues include incorrect VAT coding, incomplete records and errors within VAT returns.

Reviewing your systems as your business grows can help ensure your processes remain fit for purpose and compliant with HMRC requirements.

5. Is VAT creating a hidden cashflow challenge?

One of the most common mistakes growing businesses make is viewing VAT collected from customers as available cash.

As sales increase, VAT bills often increase too. Without proper planning, businesses can find themselves facing larger-than-expected VAT payments that place unnecessary pressure on cashflow.

Forecasting future VAT liabilities alongside wider cashflow planning can help avoid problems later.

6. Are acquisitions or restructuring plans creating VAT risks?

Growth doesn’t always happen organically. Acquisitions and business restructuring can all create complex VAT considerations.

The VAT treatment of a transaction can significantly affect its overall cost and failing to identify issues early can lead to unexpected liabilities. Property transactions in particular can come with significant risk.

Seeking advice before completing a transaction can provide greater certainty and help avoid costly mistakes.

Planning your next stage of growth?

Growth often brings new opportunities, but it can also create additional VAT obligations and risks. Seeking advice early can help you avoid surprises and ensure VAT considerations don’t hold back your plans.

Our specialist VAT team works with businesses at every stage of their growth journey, providing practical advice tailored to their circumstances. If you’d like to discuss your VAT position, get in touch with senior manager, Andy Kirkaldy, by clicking the button below.