VAT: The Basics
Updated: Aug 20, 2020
Value Added Tax (VAT) is charged on most business transactions, including many goods and services.
There are three rates of VAT in the UK:
20% (the 'standard' rate)
5% ('reduced' rate)
0% ('zero' rate)
Your business will have to register for VAT if it meets the following:
The taxable turnover of your business in the previous 12 months reaches the VAT registration limit (£85,000), although you can register voluntarily before you reach this limit.
You believe your turnover in the next thirty days will exceed the registration limit.
You take over a business as a going concern whose turnover meets the conditions above.
You buy goods from elsewhere in the EU to a value above the registration limit in one calendar year.
HMRC issue 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.
However, VAT doesn't apply to everything. Supplies which are 'exempt' include: insurance, financial services, postal services, health and education, although there are exceptions in every category.
The amount of VAT payable to HMRC is the difference between your output tax on your sales (VAT collected) and input tax on your purchases (VAT spent). If input tax is greater than output tax, a refund may be owed. The VAT due is normally payable quarterly, however there are monthly and annual schemes for some businesses.
Should you register?
If your taxable turnover is below £85,000 you don't have to register but you may want to consider the benefits:
increased business 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
You will also need to consider the additional filing responsibilities and costs incurred if you need professional help with your bookkeeping and filing VAT returns. You can find out about our VAT packages here. If you supply the general public you may not want to register as this simply puts your prices up.
There are different VAT schemes to choose from:
Cash Accounting - If your taxable turnover is under £1.35m 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 £1.35m. You must also make nine payments on account throughout the year, and a balancing payment with the VAT return
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 VAT inclusive turnover
We can assist you throughout your VAT journey including registrations, advising on which schemes are best for your business, completing your bookkeeping and filing VAT returns for you, on-going support and de-registrations. Read more about our VAT services here or give us a call.
Equal Accountancy Ltd offers Accountancy and Bookkeeping services in Hemel Hempstead and surrounding areas across Herts, Beds and Bucks. We offer a range of services for Limited Companies, Self-Employed individuals and Landlords including Year End Accounts, Corporation Tax returns, Self-Assessment Tax returns, Payroll services, VAT returns, Bookkeeping and Company Secretarial. Get in touch today for a free, non-obligatory quote for your business needs.