16 Jul VAT and your business – the basics explained
Many new and small businesses are confused when it comes to fully understanding and working out their VAT. Below we offer some VAT advice with our simple VAT guide.
What is VAT?
VAT stands for Value Added Tax. This is the tax that is levied on all sales of services or goods within the UK. As a company, you must pay VAT to the HMRC. The amount that you pay is calculated by working out the amount of VAT you charged to your customers, minus the amount of VAT that they paid on any purchases. The standard VAT rate as of January 2011 is 20 per cent. There is also a reduced rate VAT of 5 per cent that applies to businesses selling children’s car seats, mobility aids, and domestic fuel.
When do you need to register for VAT?
Not everyone needs to register for VAT. The rule here is that if your annual turnover is £85,000 or more, then you must be VAT registered. It’s also important to register if you think your annual taxable turnover could reach this limit. Many businesses also decide to become VAT registered as it paints a more professional business image.
VAT and HMRC
So, how do you pay VAT to HMRC? The most common option is for your business to complete a quarterly VAT return. You can also do so online. It’s also important that you keep accurate and detailed records of all business sales and purchases. Doing so will enable HMRC to determine if there are any due returns to you. This is when it is advantageous to use the services of an accountancy firm. One final word is that becoming VAT registered can actually save you money.
Some common terms and what they mean
Output tax: This is the tax that you can charge customers or businesses who buy any services or goods.
Input tax: If you buy services or goods from other businesses, then they will charge you input tax.
VAT: Value Added Tax
As a team of accountants, we are here to help you with all your VAT needs and provide VAT advice to all businesses. For further information get in touch with us today.