Sales tax and VAT without a tax degree
The most common cash disaster in small business is spending tax you collected on behalf of somebody else.
When you add tax to an invoice, that portion never belonged to the business. You are holding it. Treating it as revenue makes every month look better than it is and every filing date look like a crisis.
Three words worth learning
- Net: the price of the thing itself — this is your revenue or your cost.
- Output tax: tax you charged customers — a liability until you remit it.
- Input tax: tax you paid suppliers — usually recoverable, so an asset, not a cost.
Why the split matters at posting time
If a 1,150 invoice is posted as 1,150 of revenue, your margin, your tax liability and your eventual filing are all wrong at once. Split at the moment of entry — 1,000 revenue, 150 tax payable — and the return is simply the balance on the tax accounts. Extraction should read the tax line off the document so this happens without you thinking about it.
Staying filing-ready all year
- Reconcile the bank monthly so no taxable sale is missing from the period.
- Keep the actual document for any input tax you claim — no document, no claim.
- Watch for the awkward ones: zero-rated and exempt supplies are not the same thing.
- Never net a refund against a payment; post both and let the account show the truth.
- Move the collected tax somewhere you will not spend it, if that is what it takes.
A tax bill is only a surprise if the liability was never on the balance sheet.
Where a professional is worth the fee
Registration thresholds, cross-border sales, partial exemption and reverse charges are genuinely specialist. Clean, split, documented books make that advice cheap; a carrier bag of gross totals makes it expensive. The bookkeeping is what you do all year so the tax question takes an hour instead of a week.
