Value Added Tax (VAT) is charged on most goods and services, which also includes the sale of business assets, commission and items sold to employees. Some items have VAT added at a reduced rate, while others are zero rated for VAT purposes. Business owners pay the VAT charged on most services and goods bought, while they also have to charge VAT at the appropriate rate on the merchandise and services they sell. Comprehensive VAT records must be kept and all VAT collected must be paid to HMRC, which is why accounting services for small business often incorporate management of VAT.
When do I need to register for VAT?
When the turnover of a business reaches a specified amount, the owner has to register for VAT. This amount usually differs each year, but it’s advisable to check the current threshold, which for this year is £82,000. Different thresholds apply for goods sold to and from other countries in the EU. Once turnover exceeds this amount or is expected to within the next 30 days, you must register. You can volunteer to register for VAT, which may provide some financial benefits. However, you must also complete VAT returns and pay the VAT over to HMRC, or risk being charged a penalty for failure to maintain deadlines.
Once I have registered, what do I need to do?
When you have registered for VAT, you will have to charge VAT on goods and services at the appropriate rates, which are either zero, 5% or 20%. Any VAT paid by you can be reclaimed from HMRC, while the VAT you have charged customers can also be reclaimed by them if they are registered for VAT. To simplify matters, you can deduct the amount of VAT you have paid on supplies purchased for business use and pay the balance to HMRC.
VAT records
Once registered you must keep detailed records of VAT, providing details of the amount you have charged clients and how much VAT you have paid on business supplies. There are a number of schemes available for VAT and your accountant will help you decide which one to implement.
Rates of VAT
Most goods will have VAT charged at the rate of 20%. Some items are entitled to be charged VAT at the reduced rate of 5%, like a child’s car seat. Children’s clothing and most food is charged no VAT.
For more details about VAT and how it affects your business, why not call us today?