VAT For Businesses Explained

August 23, 2017 11:58 am Published by

What rate of VAT do businesses need to payVAT (Value Added Tax) is a tax added to almost everything we buy. If a business has an annual taxable turnover exceeding £85,000, they must become VAT registered. Once registered, the business is responsible for charging the correct rate of VAT on their products and services as well as recording the VAT paid by the business.

Find out more about VAT for your business; do you need to be registered? What are the different VAT rates and schemes available for businesses?

When Do You Have To Register?

You will need to register for VAT if your business’s annual sales of goods and services reach the VAT threshold of £85,000 or if you expect to go over this threshold in a single 30 day period; (this is VAT taxable turnover, not profit). From the point in time that you register for VAT, you will need to charge your customers the correct rate of VAT on the goods and services you provide as well as pay the VAT due to HMRC.

Being VAT registered means keeping detailed records of any VAT that the business has been charged, as well as any VAT charged to customer’s – most businesses employ an accountant or purchase accounting software to help them with this as incorrect returns can result in large fines.

Who Can Register For VAT?

Anybody in a business selling VAT taxable goods and services can become VAT registered, HMRC defines ‘business’ as a “continuing activity involving getting paid for goods and services”.

You cannot register for VAT if you only sell goods and services that are VAT exempt, there are also some circumstances in which businesses will be partially exempt from VAT.

How Do I Register For VAT?

Any business can register for VAT online through HMRC, but most find it easier to employ an accountant or agent to register their business, submit the VAT returns and liaise with HMRC on their behalf.

If your VAT taxable turnover goes over the threshold temporarily but you anticipate it will fall back under the threshold, you can file for a VAT tax exception with HMRC for that period – you will need to provide sufficient evidence for this exception to be approved.

Voluntary VAT

Businesses are required to register for VAT when taxable turnover exceeds £85,000 per year. However, any business may voluntarily register for VAT, whatever their turnover is.

The advantages and disadvantages of registering for VAT must be weighed up carefully as it not only creates extra accounting responsibilities, but it can mean a price rise on goods and services which might put your customers off. However, at the same time, it can result in an increase in profits and also makes a business seem more established and therefore more appealing to a larger client base.

Can You De-Register?

You are obliged to deregister from VAT if your business stops selling VAT taxable goods and services, or if you become part of a VAT group. You can also ask HMRC to cancel your VAT registration so long as your VAT taxable turnover does not exceed the ‘de-registration threshold’ of £83,000.

Types Of VAT Schemes

Under the standard VAT scheme, businesses will be required to pay 20% VAT on sales of eligible goods and services and submit their VAT returns quarterly. In addition to this standard scheme, there are other schemes available which may be better suited to certain business models:

Flat Rate VAT Scheme – The flat rate scheme was introduced to help smaller businesses save time by simplifying the accounting process for VAT, the scheme is available to ‘limited cost traders’, these traders pay VAT at a rate of 16.5% – you can find out more about the flat rate VAT scheme here.

VAT Cash Accounting Scheme – Under the standard VAT scheme, businesses are required to report and pay the VAT they owe based on sales invoices and purchases invoices – even if these invoices haven’t been paid. Under the cash accounting scheme, businesses are only required to pay and reclaim VAT owed once outstanding invoices have been paid.

VAT Annual Accounting Scheme – Under the standard VAT scheme, businesses are required to submit their VAT Returns and payments 4 times annually. Under the annual accounting scheme, businesses only submit 1 VAT return a year, reducing their accounting responsibilities.

The Different VAT Rates

There are 3 different rates of VAT that are applied dependant on the product or service that is being sold, they are as follows:

Standard Rate – 20% – This is the standard rate that is applied to almost all goods and services unless otherwise specified. The standard rate was 17.5% for a long time but rose to 20% in January 2011.

Reduced Rate – 5% – This reduced rate applied to certain items such as sanitary hygiene products, fuel and power and mobility aids in homes such as stair lifts.

Zero Rate – 0% – There are some items that do not have VAT applied to them, these items include necessities such as most foods, children’s clothing and safety equipment such as motorcycle helmets.

Need A Hand?

If you’re confused about VAT for your business, need to register, or have recently registered and are struggling with your new accounting responsibilities; we can help. With a full range of tax & VAT services designed to fit your business model, give one of our expert team a call on 0117 379 0810 to discuss your requirements.

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This post was written by Steph Roffey

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