Our Value-Added Tax Guide: Everyone is sure to have heard of Value-Added Tax (VAT) and have a concept of what it refers to them as a client (i.e. a price-bump to most transactions). But if you’re a company then your VAT understanding should stretch far beyond the additional pennies it contributes to your daily store. In reality, the processing of VAT by your business may be the distinction between your company operating legally or not.
VAT is a type of tax on expenditure–a tax applicable to acquisitions of products or services and other’ taxable supplies.’ VAT performs an significant position for a company and can be charged on a spectrum of your products and services. Charities will have distinct VAT laws. But for many companies, taxable regions include:
- Purchases of your products and/or facilities
- The hiring or credit of your products
- Exchanges e.g. swapping a fresh item for the return of the customer’s old one
- Staff purchases e.g. personnel dinners
- Business products you use directly
- The sale of company property
VAT is a fee that is eventually earned by the customer and is not a tax on personal buses. While companies pay VAT to Her Majesty’s Revenue and Customs (HMRC), the real cost has already been paid by the client, covered by the contract price of products or facilities purchased. As such, it is an indirect tax, although companies are liable for reporting it to HMRC in full.
What is the threshold of VAT? Do I need my business to register?
If your business turnover exceeds £ 85,000, you are legally needed to apply for VAT. This will force you to charge VAT on all facilities or products that your company offers-you can only charge VAT if you are enrolled to do so. VAT enrollment will also enable you to collect VAT on products and services bought by your company.
What’s my VAT number?
Company VAT figures are provided only to VAT registered companies and can be discovered on the VAT enrollment card of your company. This significant piece of documentation will also detail when your first VAT transfer is due and the date your business got beyond the UK VAT entry limit and was therefore needed to register.
What are My responsibilities for VAT?
As a VAT-registered business, you must pay VAT on your products or facilities and can also claim VAT on those you have bought for business-related reasons.
VAT paid by your company is calculated on the complete value of what you sell. VAT must be introduced to revenues even if you work on an exchange or part-exchange basis. If you pay a client without VAT integration, HMRC will still consider the retail cost you pay to be independent of VAT.
VAT registered companies must disclose the quantity of VAT they have billed or billed to HRMC via a VAT exchange generally due once every 3 months. You have to complete this even if you don’t have to report VAT.
You must pay HMRC over-charges of VAT to the client. If you have paid more VAT than you have charged to your clients then this distinction can be recovered from HMRC.
What is VAT exempt?
The VAT price relies on the type of the product or service being bought. In reality, some facilities and products are exempt from VAT. These include:
- Education or coaching
- Charitable fund raising
- Selling or allowing business property
- Insurance and finance providers
- Posting stamps
What is the difference between’ zero rate’ and’ VAT exempt?’
Zero-rated goods are not paid VAT in a traditional context, but at a price of 0 percent, enabling companies that supply these products or facilities to restore VAT on their overheads and expenses. VAT-exempt goods are not qualified for VAT reclaims.
If your company provides only VAT-exempt goods, you are not needed to apply for VAT.
What can I claim VAT on?
Businesses can recover VAT on products or services specifically used for their activity. Claiming VAT back is feasible for items like:
- Employee transport
- Mobile service plans used for company calls
- Vehicles used for company purposes only
- Fuel, equipment and servicing for such cars
- Utility charges if you are a home company (equal to the proportion of services used for company requirements)
Some items are not available for VAT reclaims, these include:
- Things bought from other EU countries
- Entertainment charges
- Anything that is purely for private use
What is the Current Rate of VAT?
The current VAT rates are as follows:
|Rate||% of VAT||Applicable to|
|Standard||20||The majority of goods and services|
|Reduced||5||Select goods and services e.g. power bills|
|Zero||0||Zero-rated goods and services e.g. children’s clothes|
You can simply calculate VAT on VAT calculator instead of all these manual calculations.
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