Value Added Tax – VAT the basics

25 September 2023

VAT is a Sales tax levied on the sale of most goods and services in the UK

Inputs and Outputs

As a business owner, you deal with VAT both in the goods and services you buy your Inputs and those you sell to customers your Outputs.

Input VAT is the valued added tax you pay (and can reclaim) on goods and services you’ve bought. Also known as input tax.

Output VAT is the tax that registered businesses must charge when selling to other businesses or customers. Also known as output tax.

If you are VAT-registered, you will need to keep track of both figures. These figures allow you to calculate the tax you owe to HMRC (HM Revenue and Customs) or the tax you can reclaim. You must declare this on Returns, which you submit at the end of every VAT period.

VAT registration

If your company makes over £85,000 in taxable turnover, you must register for VAT with HMRC. If you have gone over the £85,000 threshold, you have 30 days to notify HMRC and register for VAT.

The current registration limit is: £85,000 of Taxable Turnover. As of February 2023.

If your taxable turnover is under £85,000

You can voluntarily register for VAT if your taxable turnover is under the threshold. In some cases, the benefits of  registration may be quite advantageous for your company.

When you are VAT-registered, you may be able to reclaim the input VAT you pay them when purchasing supplies. If you pay them more input tax than the output tax you receive from your customers, you can collect the difference from HMRC, saving you money.

Current UK Value Added Tax rates

Standard rate     20%

Reduced rate     5%

Zero rate              0%

What happens after I register ?

After you register, you will be sent a VAT registration certificate with your 9-digit registration number, which you will need to show on all your invoices. Your registration letter will also tell you when to submit your first VAT return and pay any tax you owe. You will need to pay HMRC any tax you owe from the effective registration date.

Responsibilities And Record-keeping for Value Added Tax

You have certain responsibilities after registering for VAT. You’ll need to make sure you charge the correct amount of VAT and that you’re paying all tax due to HMRC. You will also need to submit quarterly returns, and keep proper records.

It is essential to keep track of important documents after you’ve registered for VAT. This means you will need to keep a separate record (sales, purchases, VAT account) alongside your regular business records (bank statements, cash books, till rolls).

You will also need to start giving a VAT invoice to customers purchasing goods charged at the standard rate of 20%, the reduced rate of 5% or 0% for some zero-rated supplies outside the UK.

HMRC can visit your business to inspect your record-keeping at any time. You could be fined if your records are not in order, so make sure they are organised.

From 1st April 2019, Making Tax Digital (MTD) came in for VAT Registered businesses turning over £85,000 or more. Businesses that fall into this category must now submit their returns via a MTD approved digital system on a quarterly basis. This means implementing new software, processes, and training your staff to remain compliant with the latest HMRC reforms.

Submitting VAT returns digitally is the first stage towards moving all tax submissions to the digital format

How do I know my supplier is VAT registered?

Your supplier can only charge tax on an invoice if they are registered and puts their  registration number on their invoices. You can check to see if their registration number is valid online at the HMRC website here. What is the UK VAT number you want to check? – Check a UK VAT number – GOV.UK (tax.service.gov.uk)

How to pay your VAT bill

Make sure your payment will reach HM Revenue and Customs’ (HMRC) bank account by the deadline. If the deadline falls on a weekend or bank holiday, your payment must arrive in HMRC’s bank account on the last working day before it. Find out details here. Pay your VAT bill: Overview – GOV.UK (www.gov.uk)

Different VAT rules

HMRC Has a range of different  schemes designed to cater for varied sizes of business in different industries, these are well worth considering as they may save you money on your tax bill or save time and effort in your calculations or both.

Different ways to report and pay for UK Value Added Tax

This article provides an overview and should not be taken as advice. Every business is different so speak to an accountant to get personalised advice on what is most suitable to your situation.

More reading: see also VAT – GOV.UK (www.gov.uk)

UK Flat Rate VAT (Value Added Tax) – Maple Accountants

Making Tax Digital: Latest News – Maple Accountants

Discover The Most Common Accounting Problems Business Owners Face (maple.uk.com)

7 Ways That Making Tax Digital Helps Your Business Succeed (maple.uk.com)

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