VAT can be a real headache for business owners, especially when different rates, exemptions and reverse charges get thrown into the mix!
VAT is an area that frequently changes, and it can be difficult to understand what rules apply to you and your business, and which don’t.
With our help, we’ll keep you on track and you can be sure your VAT obligations are taken care of quickly, leaving you to get back to business.
If your annual sales are more than £85,000 you’ll no doubt be wondering about VAT registration, and how often you need to report to the HMRC.
These returns could be quarterly, monthly or even annually, but in some cases it may be beneficial to register for VAT early.
VAT is complex, especially if you’re trading with the EU, or if you’re dealing with different VAT rates to the standard 20%.
With making tax digital for VAT (MTD) applying to all VAT registered businesses with sales of more than £85,000 from March 2021 (and to all VAT registered businesses from April 2022), you need to be using compatible software to report your sales and expenses to the HMRC.
We have extensive experience with VAT, including registering businesses for VAT and for making tax digital. If you’re struggling to understand what is best, and when to do it – get in touch and we’ll help!
What is VAT?
VAT is a tax that is added to a huge proportion of everyday expenses that we all pay. It is short for ‘value added tax’ and applies to many things such as energy costs, car expenses, hot food and adult clothing to name a few.
How much VAT do I pay?
As with many taxes in the UK, there isn’t always a straightforward answer to this question, as some items don’t have VAT on, or have a different rate of VAT charged. For the majority of items you pay VAT on, the VAT rate will be 20%, but there are other rates you should be aware of.
Reduced Rate – 5% – this can relate to energy costs for consumers or may be part of another scheme such as the hospitality sector during the COVID19 pandemic.
Zero Rate – 0% – this can relate to children’s clothing, water, basic foods, books and newspapers.
Exempt – this can relate to travel costs, sports, education and training and financial services.
Not VATable – this is known as ‘outside the scope of VAT’, and includes items such as bank charges, toll charges, and wages.
How does VAT affect my business?
It’s not often known, but when you setup a business you’re not automatically registered to report and charge VAT.
You don’t need to be registered for VAT until your turnover (sales) reach £85,000 in a 12 month period, however it may be beneficial to your business to register voluntarily before you reach this point.
You can choose to register for VAT voluntarily which can benefit your business if you have large and significant setup costs that include VAT, or if the items you sell are in the zero rated category.
The VAT you charge your customers is not yours to keep, although it may serve as a short term cash flow boost between collecting and paying it over to the HMRC, as you are simply collecting it on behalf of the HMRC and will be required to report and pay this over on a regular basis.
What are VAT schemes?
VAT schemes are different ways of recording and reporting VAT in your business, and choosing the right way for your business is important.
Head on over to our dedicated VAT schemes page for more information.
Why choose us for VAT support
VAT can be incredibly complicated, and costly if mistakes are made. As a business owner, you are legally responsible for all aspects of the business, including adhering to VAT rules, deadlines and paying taxes on time.
At Freedom in Numbers, we’re here to support your business, and take away the stress of the administrative side of business, giving you your freedom back.
We offer a monthly fixed fee service that it tailored to your business and will include all the services you’ll need to get started, including dealing with the HMRC on your behalf!
We will save you time and money.
We’re confident that you’ll love our brilliant customer service and have an excellent experience working with us.