Most purchases carry a VAT charge. Value Added Tax (VAT) is levied on most business transactions as well as on many goods and some services. VAT can seem a complex issue so below is a straightforward self-help guide to understanding VAT.
You should know there is three rates of VAT in the uk
17.5% (standard rate). Will be 20% from 4 January 2011.
5% (reduced rate)
0% (zero rate).
HMRC can issue you with a booklet that helps you choose if VAT is relevant, Your accountant should be able to advise you too.
You must sign up for VAT should you fall under any of the categories
The taxable turnover of the business in the previous 12 months reaches the VAT registration limit seventy thousand from 1st April 2010, although you can also register on a voluntary basis in the event your turnover is below this.
You think your turnover within the next thirty days will certainly exceed the registration limit.
You take over a business as being a going concern whose turnover meets the circumstances of the previous two points.
You get goods from elsewhere inside the EU with a value above the registration limit in one calendar yr.
You have to undertand there are actually penalty charges for failing to register on time. If uncertain speak to your Accountants in Leicester or contact HMRC.
Goods and services subject to VAT are classified as taxable supplies. Once registered you have to charge VAT on all taxable supplies. You will show the VAT on the invoice which is delivered to your clients.
VAT does not apply to everything. Supplies that are specifically not be subject to VAT are known as exempt and include items such as insurance, financial services, postal services, health and education, however, there are exceptions. Again refer to the HMRC guide or your accountant for advice.
The VAT due is usually payable each quarter following the submission of a VAT return, although under certain schemes the instalments can be made monthly or yearly.The level of VAT you have to pay to HMRC is going to be difference between your output tax of your sales and input tax on your purchases. If input tax is higher than output tax, a refund can be owed. You VAT return has to be submitted online and you will generally be sent a reminder by HMRC of when this needs to be done for your small business.
Is it best to register you business?
If your taxable turnover is below seventy thousand(from 1 April 2010) it’s not necessary 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 being charged 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 having to pay the VAT due every quarter. In the event you supply the public you will probably not really want to register since this simply puts your prices up by the rate of VAT.
Take advice from your accountant.
There are several VAT schemes as mentioned previously which are mainly for small business.
Cash accounting
If your taxable turnover is under one million three hundred and fifty thousandper annum you can arrange to account for VAT on the basis of cash received and paid, rather than the invoice date or time of supply.
Annual accounting
You are able to complete one VAT return per year rather that four if the turnover is under 1 million three hundred and fifty thousand. You will need to also make nine payments on account throughout the year, along with a balancing payment with the VAT return.
Flat rate scheme
This is for businesses with a turnover of under one hundred and fifty thousand and reduces administration because you just pay a predetermined percentage of your VAT inclusive turnover based upon your small business sector instead of accounting for VAT on each individual in and out. It can also minimize the VAT you have to pay in some situations.
Retail schemes
These apply to retailers and provide an alternative when it is not practical to issue invoices for a significant quantity of supplies direct to the public.
For more information on each scheme visit the HMRC website.
Here is a small list of items that an accountant will be able to assist you with regarding your VAT
registeration for VAT
advising on the suitability of the VAT schemes
assisting with completing VAT returns
setting up an accounting system to manage VAT or suggesting accounting software
representing you in any disputes with HMRC
providing VAT planning advice for complex transactions including when buying property.
Basically if in doubt speak to your accountant, this is why they are there.