A Beginners Guide to VAT
Most purchases carry a VAT charge. Value Added Tax (VAT) is levied on the majority of transactions and on many goods and some services. VAT can seem a complex issue so below is a straightforward self-help guide to understanding VAT.
You need to know there is three rates of VAT in the united kingdom
17.5% (standard rate). Will be 20% from 4 Jan 2011.
5% (reduced rate)
0% (zero rate).
HMRC can issue you with a booklet which helps you decide if VAT is relevant, An accountant should be able to advise you too.
You must sign up for VAT if you fall into any of these categories
The taxable turnover of the business in the previous 12 months gets to the VAT registration limit seventy thousand from 1st April 2010, although you may also register on a voluntary basis if your turnover is below this.
You suspect your turnover in the next thirty days is going to exceed the registration limit.
You are taking over a business as a going concern whose turnover meets the stipulations of the previous two points.
You purchase goods from elsewhere within the EU to a value above the registration limit in one calendar yr.
You should undertand there are actually fines for neglecting to register on time. If in doubt talk to your Accountants in Leicester or contact HMRC.
Goods and services subject to VAT are classified as taxable supplies. Once registered you must charge VAT on all taxable supplies. You will show the VAT on your invoice which is provided for your customers.
VAT does not apply to everything. Supplies which are specifically not subject to VAT are known as exempt and include items such as insurance, financial services, postal services, health and education, although there are exceptions. Again refer to the HMRC guide or an accountant for advice.
The VAT due is generally payable each quarter following on from the submission of a VAT return, although under certain schemes the instalments can be made monthly or yearly.The amount of VAT you have to pay to HMRC is the difference between your output tax for your sales and input tax for your purchases. If input tax is more than output tax, reimbursement might be owed. You VAT return must be submitted online and you will generally be sent a reminder by HMRC of when this needs to be done for your small business.
Should you register you business?
In the event your taxable turnover is below seventy thousand(from 1 April 2010) you don’t need to register but you might be eligible to apply for voluntary registration.
There could be advantages in registering for VAT for instance
increased business credibility;
potential savings should your supplies are zero rated however you can still reclaim VAT on your purchases;
potential savings if you mainly supply other VAT registered businesses who don not mind getting billed VAT and you could then still reclaim VAT on your purchases.
This will however need to be weighed up against the hassle factor of completing VAT returns, and paying the VAT due every quarter. If you supply the general public you will likely not want to register since this simply puts your prices up with the rate of VAT.
Take advice from your accountant.
There are different VAT schemes as stated previously that are mainly for smaller businesses.
Cash accounting
If your taxable turnover is under one million three hundred and fifty thousanda year you can arrange to account for VAT based on cash received and paid, as opposed to the invoice date or time of supply.
Annual accounting
You can complete one VAT return each year rather that four if your turnover is under 1 million three hundred and fifty thousand. You will need to also make nine payments on account all through the year, and a balancing payment together with the VAT return.
Flat rate scheme
This is for businesses with a turnover of under one hundred and fifty thousand and reduces administration since you just pay a set percentage of the VAT inclusive turnover based on your small business sector rather than accounting for VAT on every individual in and out. Additionally, it may reduce the VAT you pay in some situations.
Retail schemes
These apply to retailers and offer a different option if it’s not practical to issue invoices for a large number of supplies direct to the public.
For more information on each scheme visit the HMRC website.
Here is a small menu of items that your accountant will be able to assist you with regarding your VAT
registeration for VAT
advising on the suitability of the VAT schemes
assisting with completion of VAT returns
putting together an accounting system to deal with VAT or suggesting accounting software
representing you with any disputes with HMRC
providing VAT planning advice for complex transactions including when buying property.
Basically if uncertain confer with your accountant, that is why they are there.
This entry was posted on Sunday, October 31st, 2010 at 3:31 am and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.