April 15, 2016

VAT for business, explained

VAT for business explained

VAT. Three little letters, one big mystery to many a new business owner (and lets be honest, plenty of experienced business owners too!)

In this blog post, well aim to clear the picture once and for all. Stand by for VAT for business explained

What is VAT?

VAT, or Value Added Tax, is levied on the sale of most goods and services in the UK (with some exceptions). You might not always know when youre paying it though, because its often incorporated into the price of an item.

In order to charge VAT, a company must be VAT-registered, and indeed for any business with an annual turnover of more than £83,000, registration is compulsory (you could face a fine if you dont oblige). Youll also need to register for VAT if your business buys goods from other countries in the EU.

If your turnover is lower than £83,000, and youre not trading with other EU countries, you dont have to register for VAT - but you can choose to. And there are some benefits to doing so.

 

Should you register for VAT voluntarily?

For new businesses with a modest turnover below the threshold, registering for VAT voluntarily can give the impression that your company is bigger than it is. If youre trying to land some big clients who only want to deal with established entities, this perception can be important.

Theres a potential financial benefit too, particularly if youre incurring a lot of costs in the process of starting up your business. All of the VAT youre paying (on things like computers, office furniture and supplies) can be claimed back through the system if youre VAT registered.

Understanding how VAT works in this way means you can decide if registration is right for you.

 

Understanding VAT (how it works and how to pay)

Once youre registered for VAT, youll add the tax onto all of your sales. At the time of writing, the rate of VAT is 20% - so selling a product or service for £1000, youll add £200 VAT on top. On your invoices, keep the inc VAT and exc VAT separate and clear.

Every three months, youll complete a VAT return, noting how much VAT you have been paid in that period. Youll also need to state how much VAT you have paid to other businesses.

If youve received more VAT than youve paid out, youll pay the difference to HMRC. If youve paid more than youve accumulated, itll be HMRC paying you!

So, its not that confusing after all - but if youd like to talk tax with us on a deeper level, just give us a call on 0121 667 3882

 

DOWNLOAD THE FREE INFORM ACCOUNTING APP

playstore_slide.pngInform_MYAPP_pic.png   appstore_slide.png

 

 

Topics:

see all

Archives

see all

Latest Tweets