VAT

Most businesses will have to deal with VAT: a standard consumption tax levied on goods and services. Managing VAT involves careful calculation, collection and reporting to ensure compliance with tax laws. It's a necessary aspect of business operations, requiring attention to detail and accuracy.

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VAT is an indirect tax charged on most goods and services. If your business’s turnover exceeds the VAT threshold, which currently stands at £85,000, you will be required to register for VAT. VAT-registered businesses are required to prepare and file VAT returns, most commonly on a quarterly basis. This period is known as your ‘accounting period’. It is important to remember that - if VAT-registered - you must submit a return even if there is no VAT to pay or reclaim. These are commonly known as ‘nil VAT returns’.
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What makes us different?

As we work closely with you throughout the year, we will be able to advise you on the need to register for VAT as you near the registration threshold. In some cases, it might be beneficial to register even if you have not reached the threshold: we take care to provide you with a thorough list of pros and cons to enable you to make an informed decision at an early stage. We will also assess which VAT scheme would be most beneficial for your business. We will always ensure we register you for the right VAT scheme, manage your VAT returns and ensure you stay on top of the constantly changing VAT regulations.

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More details about VAT

How the VAT process works

Firstly, you can only charge or reclaim VAT if your business is registered for VAT. VAT is chargeable on transactions including:

  • Sales of goods and services
  • Sales of business assets
  • Hiring or loaning goods to someone
  • Commissions

These are known as taxable supplies.

Once your business is VAT-registered you must:

  • Charge VAT on all your goods or services
  • Account for import VAT on your VAT return if you use import VAT in this way

You may also reclaim VAT you have paid on business-related goods or services.

Rates of VAT

There are three different rates of VAT, and you must ensure that your business charges the right amount.

  • Standard rate. Most goods and services are standard rated. The rate currently stands at 20%.
  • Reduced rate. This covers a relatively small group of items, but for example may include children’s car seats, domestic fuel and power. The rate may depend on the circumstances, for example mobility aids for people over 60. The reduced rate is currently 5%.
  • Zero rate. Examples of items for which no VAT is payable include books and newspapers, children’s clothing and shoes, and motorcycle helmets.

What a VAT return covers and when to submit it

Examples of things that a VAT return records during an accounting period include:

  • The business’s total sales and purchases
  • The amount of VAT owed by the business
  • The amount of VAT that the business may reclaim
  • What VAT refund is due to the business from HMRC

VAT-registered businesses most commonly submit their returns on a quarterly basis, but you may also choose to submit them on a monthly or annual basis.

The Flat Rate VAT scheme

The amount of VAT a business pays or claims back from HMRC is usually the difference between the VAT charged on sales and the VAT the business pays on its expenses.

The Flat Rate VAT scheme is designed to help small businesses reduce the amount of time they spend accounting for VAT. Under the scheme:

  • You pay a fixed rate of VAT to HMRC
  • You keep the difference between what you charge your customers and what you pay to HMRC
  • You cannot reclaim the VAT on your purchases – except for certain capital assets over £2,000

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