Blog by Lisa Knight
What does it mean?
How many times have you heard that proverb?
I remember my mum saying it to me as a child when learning to save my pocket money… but what does it mean and is it as true in business?
Let’s look at the ‘penny’ literally… On its own it’s insignificant and almost worthless. Easily ignored and forgotten. They are ultimately disregarded and even thrown away. Yes – literally thrown in the bin as a nuisance, an unnecessary leftover!
Whilst you don’t need me to tell you that by collecting these instead of throwing them away you can build up a tidy sum – we all have the obligatory penny pot, oversized empty bottle or money box lurking somewhere in our homes – how does this principle translate to business and what is the significance?
Well, believe it or not, even businesses throw away money! Not literally, like our ‘pennies’ but often through lack of training, understanding, and sometimes poor practices.
One of the most common methods of doing this is hiding in your (missing) VAT receipt.
If you are a VAT registered company and you do not get VAT receipts for all your expenses, you are literally ‘giving’ money to HMRC.
No doubt, your finance dept, if you have one, will have made themselves a nuisance in their quest for a missing VAT receipt, especially if you are a consistent offender. If you’re a small company, you’re probably blissfully unaware of the issue or the impact.
Why should I care….
Put simply... for every £1 of vatable business expense, 20p is paid over to HMRC. For every £1 of vatable sales you make, 20p is due to HRMC. If you obtained a VAT receipt you are allowed to offset what you’ve paid against what you owe.. but if you didn’t get one, you now owe the VAT man that 20p.
This brings us nicely back to how ‘looking after the pennies’ translates through to business.
You won’t miss 20p on a car parking receipt, but you will miss £2,000 on a £10,000 IT Equipment expense and whatever the amount, they all add up over the quarter. You will be surprised at the amount it’s costing you.
So, get in the habit of always asking for a VAT receipt and you won’t give HMRC more than necessary and in turn you will make your accounts dept very happy.