Firstly, what is VAT?
VAT, or Value Added Tax, is levied on the sale of goods and services in the UK. It is a type of ‘consumption tax’ because it is charged on items that people buy. It is also known as an ‘indirect tax’ because it is collected by businesses on behalf of the Government. However, it is important to remember that it is not charged on products of services. Duty-free goods are exempt, and this explains why it can be known as a destination-based tax, meaning the tax rate is normally based on the location of the consumer and the sales price. In the UK, the tax plays a huge role in generating the third largest revenue for the government behind Income Tax and National Insurance.
Does your business need to register for VAT?
Business owners need to be fully aware of the value-added tax (VAT) and all other things related to it no matter what. The value-added registration threshold in the UK starts from £85,000. Therefore, when your turnover is more than this amount you need to make sure you are VAT registered. You can also register your business on a voluntary basis. It is important to remember as a business owner, that this figure is more than likely to change every so often. Businesses need to consider the great benefits that come with registering even if your VAT return is way below the threshold.
Responsibilities for VAT-registered businesses
- You must charge VAT on your goods or services.
- Likewise you may reclaim any VAT they’ve paid on business-related goods or services.
- You must report to HM Revenue and Customs (HMRC) the amount you have charged and paid.
It is important to note that if you have charged more than you have paid; you must pay the difference to HMRC. Alternatively, if you have paid more than you have charged, you are eligible to reclaim the difference back from HMRC.
The UK VAT rates for 2019
- The Standard Rate is 20% and it applies to most goods and services that are taxable in the UK
- The Reduced Rate is 5% and this applies to some goods and services such as children’s car seats and home energy.
- The Zero Rate currently stands at 0%. Zero-rated goods and services include children’s clothes and most food items. Despite their being no charges on zero rates, the sale of goods and services under this category should always be recorded by businesses.
Deadlines for VAT
It is vital that you do not miss the deadline. Your accountant will ensure this does not happen. For submission, the deadline is due on the first calendar month including the seven days duration following your VAT end period. Every business is different, and your period end can be monthly, quarterly, twice a year or annually.
Making Tax Digital for VAT
From April 2019, all VAT-registered businesses with a taxable turnover above the threshold (£85,000) are now required to keep digital VAT business records. Every business with a turnover exceeding the current threshold will have to now ensure that their records are kept digitally. Businesses with a taxable turnover below the threshold are welcome to sign up on a voluntary basis for MTD.
Our team at A&C have helped many existing and new clients prepare for MTD. Ann, our dedicated client manager uses the latest Making Tax Digital compatible software to ensure you are effectively prepared for MTD.
We offer a wide range of VAT services, including in-house training, tax returns and compliance, and investigation support.