How does VAT work?
VAT (Value Added Tax) is a tax that is added to the majority of products and services sold by VAT-registered businesses. It is compulsory for business owners to register for VAT if their VAT taxable turnover is greater than £85,000. There is also the option to register if turnover is below £85,000.
If you are registered as a VAT business, you are required to:
- Include VAT in the price of all products and services at the right rate
- Have up to date records of how much VAT you pay on anything you buy for your business
- Account for VAT on any imported goods
- Inform HMRC (HM Revenue and Customs) of the amount of VAT you have charged your customers and how much you have paid to other businesses by sending VAT returns (normally every three months)
- Pay HMRC any VAT you owe
How much VAT you pay is normally determined by calculating the difference between the VAT you have paid to other businesses and what you have charge your customers.
Like with any other tax, if you charge more than you have been paid, you must pay HMRC the difference. Whereas if you’ve paid more than you have charged, HMRC will repay you the difference.
VAT return services are available at Jan McDermott Chartered Accountants to help you correctly and efficiently submit returns to HMRC.
What is VAT charged on?
VAT is charged on a number of different things, including:
- Goods and services (a service is classed as anything other than providing goods)
- Hiring or loaning goods
- The sale of business assets
- Any commission
- Items that are sold to staff such as canteen meals
- Business goods being used for personal reasons
- What is known as ‘non-sales’ like bartering, part-exchange, and gifts
Some goods and services are exempt from or are unaffected by VAT (‘out of scope’) and there are different rules for charities when it comes to VAT compared to normal businesses.
How much VAT should you be charging?
There are three different VAT rates that can be applied to products. The one that applies to you depends on the goods and services involved and how you use them. Many products and services are charged at the standard rate of 20%, this is the rate you should charge your customers unless the goods or services you provide are categorised as reduced or zero-rated.
|% of VAT
|What the rate applies to
|Most goods and services
|Some goods and services, eg children’s car seats and home energy
|Zero-rated goods and services, eg most food and children’s clothes
How we can help you
Jan McDermott Chartered Accountants specialises in all accountancy and tax support for businesses including VAT services. If you need help and support with tax for your business our friendly team of VAT accountants will be on hand to offer key advice and assistance with everything relating to VAT from VAT registration to tax returns, meaning you’ve got more time and less stress to focus on your business.
Get in touch with our specialists today to take control of your VAT requirements.
Frequently Asked Questions
You will be required to register for VAT if you offer taxable goods or services above the VAT registration threshold. The current threshold is set at £85,000. If a taxable turnover goes above or is expected to go above the threshold either in a historic 12-month period or in a future 30-day period, the business will have 30 days to register for VAT as they will be eligible.
If your turnover is below the VAT registration threshold, you might still want to register voluntarily because it could give you the chance to recover VAT on your costs.
You might be able to get back VAT on your costs, it will depend on the types of supplies you make. A VAT-registered business can recover the tax on its costs if it produces taxable supplies or supplies that are outside the scope and give rise to VAT recovery. However, VAT can’t be recovered if it relates to exempt or non-business activities.
VAT is always impossible to recover in some cases, for example VAT on business entertainment. You must have a valid invoice to support any claim for VAT recovery.
An open and helpful approach is best with HMRC VAT Enquiry as it will give HMRC confidence and get you in the best position in respect of a possible penalty if any mistakes are found.
VAT Enquiries can be routine check-ups, or they can be because of a big repayment claim or error disclosure. VAT Enquries are often long and frustrating, especially if incorrect information is given at the start or HMRC finds errors. This is why it is so important to use professional and knowledgeable VAT accountants.
They provide us with a fully outsourced finance function so that our own team can focus on our business. They implemented Xero software from day one of the company meaning that we have real-time visibility of our business at all times, The monthly management accounts meetings we have with Jan really add value to decision-making and strategic planning and we wouldn’t be without them.
Their professionalism, expertise and client care are outstanding and they have supported our growing business no end. They look after everything from our bookkeeping, VAT, annual accounts, as well as claiming Research & Development tax relief, preparing budgets and forecasts and assisting with grant claims. The whole team are always responsive, friendly and reliable and we wouldn’t hesitate to recommend them to anyone looking for a trustworthy and efficient firm to look after their business finance requirements.
I moved my accounts over to Jan at the beginning of the year and have been extremely impressed with her attention to detail and precision. She’s made it easy for me to understand and manage all the key aspects of my accountancy, as well as offering useful suggestions of ways to improve and make things work more efficiently for me and my business. I’d highly recommend Jan and her team to anyone looking for professional, friendly, and reliable accountants that truly get to know you and offer a tailored service.”
Jan McDermott & Co have been our accountants for over 15 years and have not only ensured our accounting records are accurate and legal, but also provided us with first class advice to help us grow. They recommended our move to Xero accounting software which has revolutionised our business, allowing us to create predictable income through the use of Go Cardless Direct Debits, and streamlining our day to day accounting operations. Jan and her team are friendly, easy to work with and take time to understand a particular problem or situation. I wouldn’t hesitate to recommend them to any business that wants an accountancy firm they can grow with and depend on.