So let us talk about the dreaded VAT.
VAT (Value Added Tax) is a tax added to most products and services sold by VAT-registered businesses. The standard rate of VAT is 20%.
Businesses have to register for VAT if their VAT taxable turnover is more than £85,000. They can also choose to register if their turnover is less than £85,000.
Your VAT taxable turnover is the total value of everything you sell that is not exempt from VAT. For example, if you are a mechanic that also does MOTs and your turnover is £100,000. Therefore, over the £85,000 threshold but £20,000 of this turnover relates to MOTs which are exempt. Then the VAT taxable turnover would be £80,000 and therefore no need to register. Unless you decide to voluntary register.
Often businesses decide to voluntary register for VAT for a number of reasons. It could be financially beneficially if they are able to claim VAT back on their own costs.
There can also be a bit of snobbery, in that if you are VAT registered often you are perceived to be a bigger and better business. This does of course depend on who your customers are. If you are selling to joe public (the normal man on the street, then often they really do not care or actually might prefer you to not be VAT registered as this will make you more expensive. But if you are selling to other businesses, then the perception of bigger and better can be an issue.
You must register if:
- your total VAT taxable turnover for the last 12 months was over £85,000 (the VAT threshold)
- you expect your turnover to go over £85,000 in the next 30 days
There are 3 different rates for VAT, standard 20%, reduced rate 5% and Zero rated 0%. This is dependent on what products and services your business sells and therefore often the industry that you trade in.
There are also other products and services which are exempt from VAT. If something is exempt from VAT, it's usually because the product is considered to be an essential good or service. HMRC has a full list of VAT exempt products, but some of the main goods and services that are exempt from VAT include: sporting activities and physical education, education and training, medical supplies, and many others.
There are also many different VAT schemes that may be beneficial to your business, these include cash accounting for VAT, Flat Rate Scheme and the margin scheme. There are also businesses and charities that have to deal with partial exemption for VAT, the joys!!!
We can of course give bespoke advice which is relevant to your individual business and industry. We need to do this in the beginning, but we also need to continue to review this ongoing. It is imperative that you are on the right scheme for you and your business both today and in the future.
Things can change within your own business, maybe you diversify into new products and services, or the size of your business changes. There can also be legal changes to VAT and you need an accountant that keeps a breast of any changes. For example in March 2021 a new reverse charge VAT scheme for the construction industry was introduced. This is to tackle widespread "Missing Trader" fraud. The reverse charge scheme makes the customer, instead of the supplier, responsible for accounting for VAT on providing labour. The scheme doesn't apply to the final business or domestic customer but does apply to sub-contractors who supply workers to a main contractor.Top of Form
Another example of changes is that in April 2022 the Government introduced 0% VAT for the installation of domestic air conditioning and heat source pumps. This was done as part of the green energy bill in a bid to encourage home owners to become greener.
There is a lot to VAT and the goal posts can change. Footprints Accountancy can help by supplying you with bespoke advice for your business, services and products and the industry that you are trading in. We also need to keep abreast of this to ensure that you continue to be on the correct VAT accounting scheme as things change.
In April 2019, HMRC implemented their first phase of MTD (making Tax Digital) for VAT. This means that all VAT registered businesses now need to file VAT returns through an digital software package for example QuickBooks or Xero.
We can also help with the filing of VAT returns ensuring that you are accurate, compliant and that we remove any stresses from you and your business.
We can help your business with VAT
To discuss how we can help you in managing VAT, Duty and other indirect taxes, please contact us to arrange to speak with one of our specialists.