As a business owner, you will have a number of challenges to face and obligations to fulfil, including your tax requirements and sending information to HM Revenue and Customs (HMRC) on time.
A tax that your business may need to pay or is currently paying is Value Added Tax (VAT), which is a charge you place on your products and services that is paid by your customers. It is essentially a percentage of the price they pay for your services.
The service your business offers is dependent on the percentage of VAT you charge but any VAT charges need to be calculated and filed with HMRC.
VAT will not apply to all businesses but it’s still important to understand how VAT works so you are aware if your business does eventually become liable to register and charge VAT.
You will need to register as a VAT-registered business if the taxable turnover generated by your company exceeds the current threshold of £90,000.
By law, you will need to register this information with HMRC and follow the procedures in place by adding a VAT charge onto your products and services and file quarterly reports.
You will also need to keep records of VAT payments made for buying goods for your business and ensure you file on time and pay any outstanding VAT debts.
You can voluntarily make your company VAT-registered if you are below the £90,000 but this means you would need to follow the regulations in place and file quarterly VAT returns.
There are perks to being VAT-registered voluntarily because, although you need to follow the regulations in place, you can build working relationships with other VAT-registered businesses and you can reclaim any VAT expenses.
There are three rates of VAT, but which rate you charge customers depends on the products and services you offer.
The standard VAT rate is 20 per cent, and this will apply to most goods and services in the UK. However, there is a reduced VAT rate and the zero rate, which applies to certain items and products.
For businesses, there are three main VAT rates. The standard rate of 20 per cent will apply to most businesses for the products and services they offer but the lower rates in place apply to specific services.
The reduced VAT rate of five per cent applies to companies offering energy-saving materials and mobility aids like scooters, while the zero per cent rate applies mainly to children’s clothing products and books.
However, even if the zero per cent rate applies to your company, you are still required to register, record information and submit VAT returns each quarter.
You first need to register through the gov.uk website, where you’ll need to provide information about your business, including the company’s registration number. Once complete, you will receive a nine-digit VAT registration number.
This will need to be included in all invoices you send out. Once you have the VAT registration number, you will need to create a VAT account.
This can be done through the Government Gateway. From here, you need to follow the steps, confirm what your business does, and you’ll learn which VAT bracket your company fits into.
As noted above, VAT returns are quarterly, so make sure you are regularly calculating your figures and submitting information to HMRC on time.
If you have any concerns about VAT, our expert team can help you understand VAT and what it means for your business.
We’ll help you clarify your business’s position and ensure you have the tools to prepare if you are required to register and become a VAT business.
Get in touch with our team if you need support with VAT.
