VAT (or Value Added Tax) is a tax applied to most goods and services bought and sold in the UK and is paid by the end consumer. As a business, you have to be VAT registered in order to charge VAT on your products and services. Any business with an annual turnover of £85,000 or more must register for VAT. If a business has a lower turnover, registration is voluntary.
Once you have registered, you will receive a VAT registration number. Your business must now start charging VAT on items such as
- business sales – for example when you sell goods and services
- hiring or loaning goods to someone
- selling business assets
- commission
- items sold to staff – for example canteen meals
- business goods used for personal reasons
- ‘non-sales’ like bartering, part-exchange and gifts
These are known as ‘taxable supplies’. (Source: HMRC) You can also claim back VAT you paid on your own business purchases.
VAT rates and what they apply to
The standard VAT rate is 20% and applies to most goods and services. A reduced rate of 5% is used for very few items such as children’s car seats, domestic fuel (gas and electricity) and a few other exceptional items. Most food items, books, newspapers, children’s clothing and motorcycle helmets are examples for items taxed at 0%.
There are weird and wonderful exceptions to what falls under these categories. It’s best to check with HMRC or a competent accountant to see which tax rate is applicable to your particular products or services.
Responsibilities as a VAT registered business owner
Once registered, you have to complete a quarterly VAT Return. You will need to provide HMRC with a summary of all your purchases (where you want to claim back VAT), as well as all of your sales. As a business owner you are basically charging VAT on behalf of HMRC. And all the VAT you have charged you now have to pay to HMRC (minus the amount you are claiming back).
Also, every invoice you issue to a customer or client should state the amount and percentage of VAT you are charging.
Conclusion
As you can see, becoming VAT registered increases your admin. Here at Alba, we can take on the pressure of this additional work to allow you to concentrate on what you do best – running your business as usual. We deal with any tax issues for you, whether that’s making sure that you are charging the right amounts or which items you can claim back in your VAT returns.
If you would like some more guidance about complying with VAT rules or need any other tax related advice, please get in touch. You can reach us by email admin@alba.uk.com or by phone 01509 853779.