10 Jul Three basics companies need to know about VAT
For many people, VAT is rarely thought about.
It’s an additional cost on products, but as it is incorporated into the displayed price for many items in the UK, it almost becomes an invisible tax. As such, many people don’t know much about it or even care.
While this is fine for people who don’t have to consider the implications of VAT, it’s something that every business, even start-ups, need to consider. However, given that people probably haven’t studied VAT previously, business owners will be starting from a blank slate.
Here are a couple of basic facts you need to understand about VAT as a business owner.
1. VAT registered companies work for HMRC
If your company is VAT registered, then it means you will be collecting tax for HMRC. You can claim back VAT on the items you buy in, but you must charge VAT on everything you sell, assuming it is liable for VAT. This works well for HMRC because it means successful companies will charge more VAT than they reclaim, so HMRC receives a higher revenue overall.
2. The standard rate of VAT
In the UK, the rate of VAT is currently 20%. However, the government can change the rate of VAT, and within the past 15 years, the UK has seen VAT rates set at 15% and 17.5%. Equally, 20% VAT does not apply to everything. Some items, such as fuel and children’s car seats, will be charged at 5% VAT, and other products including new homes and books have no VAT on them at all.
3. VAT rules change
The rules surrounding VAT aren’t fixed, and while the EU currently has to approve changes, after Brexit the government will be able to alter VAT rules by themselves, which will go through far more quickly. Whether this is a significant change such as the overall rate or minor ones like the changing of VAT chargeable status for different items, you need to know about them. However, many businesses, especially startups, don’t have the time to follow VAT rules.
That’s where SQK Accountancy can help! We keep our finger on the pulse for all VAT and PAYE legislation changes, so you don’t have to. For more information about how we can assist your business, please contact us today.