Once a company reaches the annual threshold for VAT, which is £83,000 for the tax year 2016-17, it is responsible for charging VAT on its services and goods. The company may also claim a repayment of any surplus VAT paid, if it is registered with HMRC. Although it is compulsory to register for VAT once a company reaches that year’s threshold, some businesses also register on a voluntary basis as there are some benefits to doing so.
Reporting to HMRC
A business has to report the amount of VAT it has charged customers, along with the amount of VAT it has paid on any goods or services bought. If the firm has paid more VAT than it has charged to customers, it will be able to claim a repayment. However, if the company has charged more VAT than it has paid, the balance will have to be paid to HMRC.
Companies report to HMRC on the VAT return, generally on a quarterly basis. It is possible for a business to file a VAT return on a monthly basis too.
VAT rates
There are three rates of VAT: zero rate, reduced rate and the standard rate.
Most goods and services are charged at the standard rate of VAT. Items which may be zero rated include children’s shoes and clothes, newspapers, books and motorcycle helmets. Any transactions that are zero rated still have to be reported to HMRC on the VAT return, although you won’t charge any VAT. If unsure of the rate to charge, you may want to consult an accounting service so that you are not hit with a penalty by HMRC.
VAT exemption
With some goods and services, no VAT at all is charged on them. These transactions don’t need to be included in the VAT records of a company. Examples of these include health services, postage stamps and insurance. If a company only sells items that are exempt from VAT, it won’t be able to register for VAT.
VAT is a complex subject, with some goods and services attracting a VAT charge and others being exempt or chargeable at a reduced rate. There are different rules that apply to discounts and vouchers, along with items that have been returned, lost or damaged. If you would like to discuss other aspects of VAT, please contact us and we will be pleased to arrange an informal meeting.