Accounts Corporation tax

VAT

Why choose Freedom in Numbers to help you with VAT?

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.

 

Xero VAT Badge

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!

Don’t panic, we’re here to 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.

MTD VAT Badge

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.

VAT
VAT

Not sure how VAT works, and whether you should register for VAT, or what VAT schemes are and which is right for you?

 

Download our handy guides explaining VAT, and how it works.

Still unsure what everything means?

No problem, we’ve got some FAQ’s that will help answer your questions.

How much is VAT in the UK?
The standard VAT rate is 20%, which covers most services and goods sold in the UK.

However there are some goods and services that attract VAT at different rates, including 0%, 5% and exempt for VAT.

In the 2021 budget, the 5% hospitality VAT rate will be extended to September 2021, and then will increase to 12.5% for 6 months before returning to 20% from April 2022.

What is the VAT registration threshold?

The threshold for registering for VAT is £85,000.

If your VAT-able sales (sales that would normally attract VAT and are not exempt) are more than £85,000 in a 12 month period, then you are required to register with the HMRC as soon as you become aware.

BREXIT has brought in some further VAT thresholds that may also affect your business.

You’re required to register for VAT or join a VAT accounting scheme from 1st January 2021 if:

  • Your sales to Northern Ireland via distance selling rules are more than £70,000.
  • You are importing goods into Northern Ireland from the EU of more than £85,000.

If you’re joining a VAT scheme, you should be aware of the relevant thresholds for those schemes too:

  • Flat Rate Scheme – £150,000 of sales or less.
  • Cash Accounting Scheme – £1.35 million of sales or less.
  • Annual Accounting Scheme – £1.35 million of sales or less.

What deadlines should I know about?

VAT returns must be filed one month and 7 days after the period end. Payment must also be made by this deadline too.

If you are signed up to pay your VAT by direct debit, you are given a few more days to pay (usually around the 10th instead of the 7th).

What are the benefits of being VAT registered?

Sometimes it can be beneficial to your business to register for VAT before you have to – known as voluntary registration.

Some of the benefits of doing this include:

  • Bigger business appearance – You’ll have the appearance of a bigger business if you’re charging VAT, as the current limit for compulsory registration is £85,000 on VATable turnover (2020/21).
  • Recover VAT on your startup costs – If you sell to VAT registered businesses they can reclaim the VAT from HMRC so your selling price is still competitive and you will be able to recover the VAT on your costs, including any VAT on those costs that you incurred starting up (pre-registration).
  • Better records – Maintaining up to date records will provide better information for running your business.
  • If you sell zero rated items (such as children’s clothing) you will definitely be better off as you’ll be able to reclaim all the VAT on your business expenses.
  • Increased short term cash flow – You’re likely to receive repayments because your VATable sales are lower than your VATable costs. This may be because building up stock levels or because your sales are below the standard rate of 20% at either the reduced rate of 5% or zero rate 0%.

How does VAT work now BREXIT has happened?

VAT is a little more complex since the UK left the EU and the customs union.

We’ve written a blog all about it – click here to read it!

How can an accountant help me with my UK VAT returns?

VAT is a constantly changing tax that involves vast amounts of knowledge to stay compliant.

An accountant is required to undertake regular training to ensure their knowledge is current and up to date, which is to make sure they are competent in their role as your adviser.

An accountant can help you by dealing with the complexities of VAT, along with dealing with the HMRC so you don’t have to. They’ll also help you keep your business compliant and take the administrative burden of VAT off your shoulders.

How do I register for UK VAT?

The easiest way is to register online, using your business tax account. Visit the HMRC’s VAT registration page to get started. Your accountant can also register your business for VAT and deal with HMRC for you.

Some businesses can’t register online and will need to use a VAT1 form by post. This may also apply if you’re:

  • applying for a registration exemption.
  • joining the Agricultural Flat Rate Scheme – VAT98 form.
  • using separate VAT numbers to register a group of businesses.
  • an EU business distance selling into Northern Ireland.
  • disposing of assets and you have claimed Directive refunds on them.

The most important things to consider are:

The date you register for VAT

How your prices will be affected once you register for VAT – if you register from day 1 then your prices won’t need to change due to VAT registration, but if you choose later down the line, will your customers accept the 20% increase?

What VAT scheme will you use?

Head over to our VAT scheme page here to learn more about finding the right VAT scheme.

 

Freedom in Numbers - Accounting and Business Support

 

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