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VAT

A Basic VAT Guide

If you are in business, whether as an individual, a partnership or as a Limited Company, then you must register for VAT once your taxable turnover reaches a certain threshold. If you do not register for VAT at the right time you could be subject to penalties.

If your turnover is below this threshold you may still be able to register for VAT voluntarily.

To register for VAT you must complete and submit an Application for Registration form (Form VAT 1) to HMRC. This can be done online via the www.gov.uk website or in writing using a downloaded &  printed version of the form, again found on the www.gov.uk website.

HMRC’s VAT registration process should be quite quick where they require no further information from you and once complete they will give you a VAT Registration Number, which is unique to your business and must be shown on invoices you raise to your customers.

They will also confirm your date of VAT registration which is the date from which you must charge VAT on your sales and account for this VAT to HMRC.

VAT is normally charged at 20% but some sales may be chargeable to VAT at 5% or even at 0% . Sales that are subject to 20%, 5% or 0% are all known as taxable sales.

Some sales may be specifically exempt from VAT or simply not subject to VAT at all. These sales are not taxable sales.

When you are registered for VAT you will normally be able to claim VAT charged to your business purchases and expenses although this is subject to certain rules and restrictions.

To claim VAT on purchases and expenses you must hold an invoice or receipt to show that the VAT you are claiming has been charged to you.

To account for the VAT due on sales and the VAT claimable on purchases you will need to complete and submit simple form (a VAT return) to HMRC, normally one a quarter. You will also need to keep detailed day to day business records to support the figures you declare on the VAT return.

If the VAT due on your sales is greater than the VAT being claimed on your purchases, then the balance will be payable to HMRC. If the VAT being claimed on your purchases is greater than the VAT due on your sales, then HMRC will repay the balance to you.

There are a number of schemes to assist small businesses including:

  • Flat Rate Scheme – which helps by reducing the amount of detailed VAT records you are required to keep.
  • Cash Accounting – which helps small businesses with cashflow by only requiring you to account for VAT on sales when your customer pays you, although you can only claim VAT on purchases and expenses once you have paid for them.
  • Annual Accounting – which reduces the number of VAT returns due to be submitted to HMRC to 1 a year.

You may also be interested in…

Flat Rate Scheme

The Flat Rate Scheme (FRS) is an alternative way for a small business to account for VAT, the purpose of the scheme being that it reduces the administrative burden on small businesses by allowing them to keep simplified and less detailed VAT records…

This guide was provided by Qdos Vantage – Specialist Fee Protection providers.