What is VAT?
VAT is Value Added Tax charged by VAT registered companies on the value of the goods or services they supply.
What is a VAT Return?
A VAT return is a form you file with HM Revenue & Customs (HMRC) to report how much VAT you are due to pay them.
How is VAT calculated?
VAT is calculated by taking the amount of VAT due on sales, minus the amount of VAT you can reclaim on purchases over a 3 month accounting period – the difference is the amount you pay. If the amount you reclaim is more than the amount due HMRC will issue a VAT refund of the balance.
Who should submit a VAT Return?
UK law requires companies with a turnover above the VAT threshold to register and charge VAT on taxable goods or services at the appropriate rate. UK VAT registered businesses charge VAT for taxable goods or services and then submits a VAT return to HMRC, the government’s tax-collecting authority.
Once your business reaches the UK VAT registration threshold of £85,000 for any consecutive 12-month period (not just your 12 month accounting period), it is compulsory to register with HMRC by the end of the following month. Once you are registered you must start charging VAT at the appropriate rate on your sales invoices for the goods and/or services you supply.
Some businesses may choose voluntary registration despite not meeting the VAT registration threshold. For these businesses the VAT they pay out on purchases may exceed the VAT they charge on goods are services – once they are registered with HMRC and submit an online VAT return they will be able to claim a VAT refund. At Styles & Associates we can help you decide what is the best course of action for your business to ensure you are not only tax compliant, but tax efficient.
When should my business register for VAT in the UK?
What is the current UK VAT rate?
Are all goods & services liable to VAT?
In the UK there are 3 basic rates of VAT:
UK Standard VAT Rate: 20%
This is covers most goods and services in the UK
UK Reduced VAT Rate: 5%
Some goods and services are charged at a lower rate – this includes children’s car seats, domestic fuel and power. During the COVID-19 epidemic in 2020 the government temporarily reduced VAT from 20% to 5% for suppliers of hospitality, hotel and holiday accommodation and admission to certain attractions. The reduction applies between 15th July 2020 to 12th January 2021.
Zero Rate VAT: 0%
0% VAT rated goods and services includes most basic food and children’s clothes.
If you are unsure what VAT rate you should charge for your goods or services get in touch with Styles & Associates on 01420 541 554 to talk to one of our tax professionals.
Some goods and services are exempt from VAT, these include insurance companies, education providers and funds raised for charities. Businesses are not required to register for VAT if they fall below the UK VAT registration threshold and therefore do not need to charge VAT on goods or services.
Registering for VAT
Paying VAT is straightforward – Styles & Associates can act as your agent and register with HMRC 's online service.
HMRC plans to transform the way the tax system works with their plans for Making Tax Digital (MTD). The aim is to make the tax system more effective, efficient and easier to navigate.
'VAT-registered businesses with a taxable turnover above the VAT threshold (£85,000) are now required to follow the Making Tax Digital rules by keeping digital records and using software to submit their VAT returns. The majority of businesses want to get their tax right, but often find the system complicated to navigate. At Styles & Associates we can manage and submit accurate digital records on your behalf.
VAT-registered businesses with a taxable turnover below £85,000 will be required to follow Making Tax digital rules for their first return starting on or after April 2022.
Self-employed businesses and landlords with annual business or property income above £10,000 will need to follow the rules for MTD for Income Tax from their next accounting period starting on or after 6 April 2023.’
When should you submit a VAT Return?
UK VAT registered traders usually submit a VAT Return to HM Revenue and Customs (HMRC) every 3 months. A VAT return records the VAT you have been charged by your suppliers and the VAT you have charged your customers – the balance is the amount you pay (or are refunded) HMRC.
What VAT can you claim back?
VAT registered companies can claim back VAT on legitimate businesses expenses for goods and services that are used exclusively for your business. This includes office stationary and cleaning supplies, computers, equipment, uniforms, tools, transport costs and services such as accountancy and legal services.
How far back can you claim VAT on invoices?
You should claim VAT back in your accounting period each quarter – however you can reclaim the VAT on goods you bought up to 4 years from the invoice date before registration, and services up to six months before VAT registration. If you need assistance claiming back VAT get in touch with Styles & Associates to discuss how we can help you. Call 01420 541 554 for professional tax advice.
Can I claim VAT back if my business is not VAT registered?
A UK business cannot reclaim VAT back on purchases if they are not VAT registered.
What records do I need to keep for VAT?
UK VAT registered traders should retain all information relating to your VAT return. This must include all invoices and receipts for sales and purchases for at least six years. At Styles & Associates we appreciate that keeping physical records may not be practical in terms of storage. We use online systems that meet this requirement and offer our clients the use of the Receipt Bank app which allows them to easily register all of their accounting documentation and expenses electronically.
What are the VAT return periods?
VAT registered business in the UK need to submit a VAT return and any payments due to HM Revenue and Customs (HMRC) on a quarterly basis within one month and 7 days of the end of the relevant period
Late VAT payment penalties
Penalties are applicable if you file your VAT return late or make a late payment. You enter in to a 12-month ‘surcharge period’ with HMRC - this is a percentage of the VAT outstanding on the due date for the accounting period in default. The surcharge rate increases every time you default again in a surcharge period and will be reset for a further 12 months.
Deferred VAT – 2020/21
Due to the COVID -19 pandemic in 2020 the UK Government has announced temporary changes to VAT payments to support business. UK businesses that have a VAT payment due between 20th March 2020 and 30th June 2020 can defer the payment until a later date, without paying any interest or penalties. Payments can now be spread out over 11 instalments with no interest to pay.
Areas we cover:
VAT Services Across The South.
VAT services from Alton based accountants for businesses in Hampshire and the surrounding areas.