Tax challenges are common for business owners as they look to ensure they are meeting their legal obligations.
There are many taxes business owners will be dealing with, and that may include Value Added Tax (VAT), which businesses must apply to their products and services should they surpass the UK’s VAT threshold.
The tax is indirectly paid by your customers at a certain rate and you must calculate the total VAT made from your products or services and submit all information to HM Revenue and Customs (HMRC).
It’s important to remember that VAT will not apply to every business in the UK so you need to check your taxable turnover figures and know how VAT works so that you are prepared should your business need to pay VAT in the future.
The VAT facts
You need to be aware of the three VAT rates businesses fall into and this depends on the products and services your business offers.
The standard VAT rate is 20 per cent, and this applies to most businesses as well as most goods and services in the UK.
There is also a reduced VAT rate of five per cent and a zero per cent VAT rate. The reduced rate only applies to companies selling or offering energy-saving materials and mobility aids, while the zero per cent VAT rate applies to businesses selling children’s clothing and books.
Whether you are paying the zero or standard rate of VAT, you are required to record all information and figures and submit your VAT returns on the correct dates.
Businesses need to be VAT-registered if they meet or surpass the £90,000 threshold. Your taxable turnover determines if you need to become a VAT-registered company, so surpassing the £90,000 threshold means you need to register.
You will then need to add VAT at the rate you fall into onto your products and services and calculate all figures.
You have the option to register voluntarily even if your business’s taxable turnover is below the threshold. However, as you have voluntarily chosen to be VAT-registered, you must comply with the regulations in place this means filing and submitting VAT returns.
Despite this, there are perks for voluntarily registering including having the ability to reclaim VAT expenses and build relationships with VAT-registered companies.
Becoming VAT-registered means you need to add VAT charges to your products, keep a record of your VAT deals, submit quarterly VAT returns, and pay HMRC any VAT your company owes.
Where do I register?
VAT registration takes place online. You must register your company through the GOV.uk website and share information with HMRC about your company, including its registration number.
You will then receive your company’s nine-digit VAT registration number, which you will need to place on all future company invoices. Your VAT number then helps complete the next step, which is creating a VAT account through the Government Gateway.
When setting up your VAT account, you will need to confirm further information about your business, which will determine which VAT rate you will need to apply to your business’s products or services.
Need comprehensive VAT support?
It can be tricky to grasp VAT, but it is important to clarify if your business needs to register and apply a VAT figure to your products and services.
Our expert team of tax advisors can help you understand VAT, look at your figures, and help you put steps in place to register and follow HMRC’s strict guidelines.
We’ll support you every step of the way to ensure you are meeting your tax obligations.
Speak with our expert tax advisors for more information and tailored VAT support.