VALUE ADDED TAX (VAT)

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As chartered accountants with many years’ experience helping small businesses, we can;

  • calculate your VAT liability;

  • prepare and file VAT your returns with HMRC;

  • advise on VAT treatment for transactions;

  • advise on alternative VAT schemes

  • manage/liaise with HMRC on your behalf

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What is VAT?

VAT is a 'consumption' tax. It is levied on the purchase of goods and services (known as 'taxable supplies'). VAT is important since it can have a significant impact on your business...

...VAT can:

  • Influence the price you set on the goods you sell or the services you provide 

  • Affect your profit margins

  • Increase the administrative burden on your business

  • Complicate your bookkeeping and accounting processes

If your business is VAT registered, you will need to charge VAT on top of your regular prices (known as 'output VAT'). When customers pay for the goods or services which you offer, your business is responsible to collecting and paying this VAT to HMRC. 

As a VAT registered business, you can also claim VAT on any purchases your business makes (known as 'input VAT').

The difference between the amount of output VAT your business collects from customers/clients, and the amount of input VAT the business claims, is the net amount which becomes payable to, or due from, HMRC - usually on a quarterly basis.

The basics - how VAT works

But, it's not quite that simple...

VAT is far more complex that you might first think. Unfortunately, it is not a simple case of adding 20% onto the price of your goods or services. The below list covers, in brief detail, some of the additional considerations and factors which make VAT such a complex subject:

  • Alternative VAT schemes

    • Annual-accounting scheme​ - this scheme involves making advance VAT payments to HRMC, but reduces the administrative burden of filing multiple VAT returns.

    • Flat-rate VAT scheme - this scheme involves paying a fixed rate of VAT and depending on the nature of your business, it can result in the business saving money compared to the  'standard' VAT scheme. 

  • VAT accounting and bookkeeping  - businesses will need to account for VAT correctly, which includes ensuring that you have adequate systems in place to capture, calculate & report VAT.

  • Pricing of goods - businesses will need to decide whether to pass on 100% of output VAT to customers; pass on a portion of the extra cost, or; absorb the cost to maintain price-competitiveness (at the expense of margins).

  • Overseas business - if your business makes 'taxable supplies' or purchases goods or services from overseas, VAT treatment can vary depending on whether the origin of those goods/services are EU or non-EU.

  • Reduced, Zero-rate & exempt supplies - VAT is charged at 20% on most taxable supplies, however, certain items qualify for reduced-rate VAT, zero-rate VAT or are fully exempt.

WANT TO LEARN MORE ABOUT VAT...?

With VAT being such a complex topic, it is important to get the right advice.

 

VAT can be more than just an administrative obligation for your business - it can impact the way in which you price your products or services, and influence decisions on where to purchase your goods/services from.

HRMC is also gradually digitalising tax. As part of this digitalisation, HRMC are changing the requirements for businesses, when it comes to recording and submitting your VAT returns - known as 'Making Tax Digital' (MTD). MTD will have a large impact on your business and its existing processes if you do not currently operate an electronic record keeping system.

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To learn more about VAT, read our guide at the below link. Alternatively, get in touch with us today, and we can talk to you about VAT and how it might affect your business - whether you are currently registered, or not.

  • Registration

    • Mandatory registration - there is a mandatory registration requirement for companies who exceed a certain level of 'taxable supplies', including a requirement for companies to register in advance if they expect to exceed the threshold in the near future. 

    • Voluntary registration - ​a company may wish to voluntarily register for VAT for a number of commercial or operational reasons.

    • Registration exemptions - certain exceptions apply to businesses who exceed the mandatory registration threshold temporarily.

  • Pre-registration purchases - When you register for VAT, it is possible to make a claim to recover the input VAT paid on certain purchases made prior to registration, however, there is a time limit for backdating claims.

Businessman

Currently keeping manual records or using a 'paper-based bookkeeping system?

                                   

                                                               Make sure you 'MTD' compliant...

Visit our 'Making Tax Digital (MTD)' page to find out more

Whatever your needs, get in touch with

us today and we'd be happy to help 

Want to know specifically how VAT might

             impact your business

?

Full Accounting Services starting from

             per month

Need help with 'Making Tax

      Digital' (MTD)

?

See our fees page for full details

£69

Call us on 020 3916 5018

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