One of the most important roles we can fulfil for you in relation to VAT is that of adviser. For most businesses, taking the step to become VAT registered is a big decision. On the one had there are the benefits of VAT exemption for purchases but on the other there’s the large volume of paperwork, the looming threat of inspection and the cost of charging VAT to smaller clients who may not be able to claim it back.
If you’re thinking of taking the step to become VAT registered but aren’t sure about it, we can offer you a free initial consultation in which we can address some of the issues that surround this complex area of taxation. After that we’ll be on hand to discuss things further if you need.
If you’re ready to take the plunge but are worried about the paperwork involved, don’t be. Believe it or not, our chartered tax advisers like nothing better than trawling through your old receipts to piece together your VAT information. We’re able to handle the whole process on a quarterly basis, or give you an extra helping hand if you have a VAT inspection looming. Our comprehensive bookkeeping service makes the whole thing easier too. If you opt for this, you won’t have to worry about providing us with specific information, or keeping VAT records: We’ll do all that for you and produce your VAT return, annual accounts, annual returns and SA Tax return for you with information we collect on your behalf.
Some items are also exempt from VAT and although they might seem to amount to the same thing, the difference between zero rated and exempt is an important one (see below). VAT is charged only by VAT registered businesses which may include individuals, companies, cooperatives, clubs and other organisations. These organisations are able to reclaim VAT that they pay for goods and services that they purchase during the course of their business activities in relation to VAT applicable items that they sell. Being VAT registered has its advantages for this reason but the process of accounting for and administrating VAT is complex and can be more trouble than it’s worth.
Most goods and services are taxed at the 20% rate. Lower rates are typically charged for items considered essential, beneficial or charitable. These include things like heating fuel (reduced rate) children’s car seats (reduced rate) Dispensing of prescriptions by a registered pharmacist (0%) and the public postal service (exempt). In all cases, the rate of VAT applicable may change depending on who is paying for the supply or service and all companies and individuals selling VAT registered goods are advised to consult a chartered tax advisor or HMRC directly to confirm the rate that they should be charging.
The difference between 0% and exemption from VAT relates mainly to the way in which sales of these goods and services are recorded and reported to HMRC. Zero-rated goods are taxable for VAT but the rate charged on them is 0%. This means that companies selling these goods and services are able to reclaim VAT on purchases they make that relate to these items – petrol used to deliver them for example. Exempt items, by contrast, are not taxable for VAT and as such no VAT can be reclaimed in relation to activities involved in selling them. Similarly, zero rated goods must be included in your VAT return and accounted for by HMRC, exempt goods and services do not need to be included.
Generally speaking, if you sell VAT taxable goods and services, you need to be VAT registered though this is not always the case: Thresholds exist in relation to volume of taxable supplies (the amount of VAT taxable goods and services that you sell) distance sales (sales to non taxable persons like charities and public bodies within the EU) and relevant acquisitions (purchases for the purpose of non-taxable sales within the EU). If your activities fall within these thresholds you are not obliged to be VAT registered, although you may choose to be anyway. In these situations it’s important to consider whether VAT registration will really be of benefit to you and your business.
As a VAT registered business you must make a VAT return to HMRC at the end of each VAT period which is normally every 3 months. Broadly speaking, there are 2 ways to calculate your VAT bill: conventional VAT return and the flat rate scheme. In the conventional return you must account for the total amount of VAT applicable sales you have made and calculate the appropriate amount due based on the correct rate for each sale. This ensures that you only pay exactly the amount of VAT that is actually due, but can be time consuming and complex. The flat-rate scheme is designed to be simpler for the benefit of small businesses: The total turnover for a given period is determined and a pre-arranged percentage tax applied to this which is the amount of VAT that you pay.
In addition to returns, as a VAT registered business you must keep separate VAT records which clearly illustrate the numbers you use to calculate your VAT return. There must be separate entries in your annual accounts that detail the volume of VAT taxable sales as distinct from those that are not taxable. In addition you must keep copies of till roles, purchasing orders and the like where these are relevant to VAT taxable activities. HMRC are entitled to make regular VAT inspections and require these documents to be readily available if and when they do. One of the main reasons that many companies decide against VAT registration is the onerous task of maintaining these records and preparing for inspections.
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