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 Most purchases carry a VAT charge. Value Added Tax (VAT) is levied on most business transactions and on many goods and some services.
There are three rates of VAT in the UK:
- 17.5% (the 'standard' rate)
- 5% ('reduced' rate) and
- 0% ('zero' rate).
You will probably have to register for VAT if any of the following apply...
- The taxable turnover of your business reaches the vat registration limit (presently £64,000 per annum), although you can also register on a voluntary basis if your turnover is below this.
- You take over a business as a going concern.
- You buy goods from elsewhere in the EU.
There are penalties for failing to register on time.
Goods and services liable to VAT are known as 'taxable supplies'. Once registered you must charge VAT on all taxable supplies.
VAT doesn't apply to everything. For example insurance, some education, training and loans are 'exempt'.
The amount owed to Revenue and Customs is the difference between your output tax on your sales and input tax on your purchases. If input tax is greater than output tax, a refund may be owed.
Should you register?
If your taxable turnover is below £64,000 you don't have to register but you may be eligible to apply for 'voluntary registration'.
There can be advantages in registering such as...
- increased credibility;
- potential savings if your supplies are zero rated but you can still reclaim VAT on your purchases;
- potential savings if you mainly supply other vat registered businesses who don't mind being charged vat and you can then still reclaim vat on your purchases..
This does however have to be weighed up against the hassle factor of completing VAT returns. If you supply the general public you will probably not want to register as this simply puts your prices up by 17.5% to them.
VAT Schemes
There are various vat schemes, mainly for small businesses...
- Cash accounting - If your taxable turnover is under £1,350,000 a year you can arrange to account for VAT on the basis of cash received and paid, rather than the invoice date or time of supply.
- Annual accounting - You can complete one vat return per year rather that four if your turnover is under £1,350,000. You then make regular payments on account throughout the year.
- Flat rate scheme - This is for businesses with a turnover of under £150,000 and saves on administration as you just pay a set percentage of your total turnover based on your business sector rather than accounting for VAT on each individual "in and out". It can also reduce the VAT you pay in some situations.
- Retail schemes - These apply to retailers and offer an alternative if it's not practical to issue invoices for a large number of supplies direct to the public.
How We Can Help You
We can assist you with…
- registering for VAT
- advising on suitability of VAT schemes
- assisting with completion of VAT returns
- setting up your accounting system to deal with VAT
- representing you in any disputes with HM Revenue & Customs
- providing vat planning advice and completion of VAT returns
Got a Question?
If you have any queries on any of the above, please ask a question
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