Michael Webb ACA CTA provides a guide to VAT accounting for small and medium-sized businesses.\u00a0<\/h2>\n
How well does your business account for Value-Added Tax (VAT)<\/span>, if at all?<\/p>\n Do you understand the different rates, schemes,\u00a0and how they’re applied?\u00a0<\/p>\n VAT is a vital area of business taxation that you have to get right, it takes the form of a fee in almost every phase of goods and services being produced and\/or distributed. It’s another tax amongst the likes of Corporation Tax, National Insurance, and Business Rates (to name a few) that you’ll likely have to manage efficiently and make payment.\u00a0<\/p>\n Whether you meet the threshold for registering for VAT<\/span>, or not, you’ll probably deal with suppliers who are, and so you’ll pay VAT on their products and services. This means VAT will likely impact on how you price things for your customers!<\/p>\n In this blog post we provide you with a guide as to how VAT works as a tax for SME businesses. We look at the various aspects of it, the threshold, how rates differ for various products and services, the different schemes you choose from to apply the tax, calculating your liability, and the record keeping required to manage all of this and stay compliant.\u00a0\u00a0<\/p>\n This post specifically covers:<\/p>\n \u00a0<\/p>\n <\/p>\n <\/span>What is VAT?<\/strong> <\/span><\/p>\n VAT is a tax levied on goods and services at the point of sale. It applies to almost all goods and services that are purchased in the UK. This means consumers ultimately pay for the tax, whilst businesses charge, pay and collect it on behalf of HM Revenue & Customs (HMRC).\u00a0<\/p>\n There are 3 main rates of VAT through which VAT is applied in the UK to different types of goods and services depending on their purpose and nature. The standard rate<\/span> is applicable to most goods and services. The reduced rate<\/span> pertains to things such as energy saving materials and children’s car seats.\u00a0Zero-rated<\/span> goods can include books, children’s clothing, and food. Of note, all 3 rates apply to land related services.\u00a0<\/p>\n Standard rate – 20%\u00a0<\/p>\n Reduced rate – 5%\u00a0<\/p>\n Zero-rated – 0%\u00a0\u00a0<\/p>\n <\/p>\n It is compulsory to register for VAT if:<\/span><\/p>\n Taxable turnover, also referred to as VAT taxable turnover<\/span>, refers to\u00a0sales that are subject to the various rates of VAT. Some income may be exempt from VAT, if for example it has a non-UK place of origin.\u00a0<\/span><\/p>\n There may be instances where you may want to register before breaching the threshold<\/span>. Referred to as a voluntary registration, this can help your cash flow as being registered for VAT allows your business to claim back input VAT on your costs.<\/span> Pursuing such a strategy doesn’t likely work if your customers are members of the general public (consumers), or small businesses that themselves haven’t registered for VAT. Doing so means you would have to charge your customers VAT, something they then wouldn\u2019t be able to claim back. Consequently your customers would likely end up paying more for these goods or services.<\/span><\/p>\n You can use this tool<\/a><\/span> courtesy of HMRC to help you:<\/span><\/p>\n <\/p>\n You can register for VAT<\/a><\/span> online. HMRC then review your application and once they accept it, you’ll get a VAT online account<\/span> and they will send you a certificate within 30 days. This contains your unique VAT registration number<\/span>.\u00a0<\/p>\n It is from the date of registration that you must apply and pay HMRC any VAT due on relevant sales income. Needless to say, you’re likely to apply for VAT registration from a specific date. This means there will be what is described as an ‘interim period’ between the date of application, and the date your certificate and VAT number arrive.\u00a0<\/p>\n During this timeframe you’ll have to charge VAT on any relevant sales, however, you won’t be able to issue VAT invoices<\/span> until your VAT registration number arrives. Consequently you’ll have to add the correct rate of VAT onto any invoices you issue to your customers, from the date you applied to be registered.\u00a0<\/p>\n \u00a0<\/p>\n![\"Avoid](\"https:\/\/no-cache.hubspot.com\/cta\/default\/2284600\/9f7a3b27-92bc-42a3-98b2-418583ff5eb5.png\")
<\/a><\/span><\/span><\/p>\nWhen do you need to register for VAT?<\/h2>\n
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How to register for VAT<\/h2>\n