As a new business owner in the UK, one of the most crucial aspects of fiscal responsibility you'll need to understand is Value Added Tax (VAT). VAT is a consumption tax placed on a product whenever value is added at each stage of the supply chain, from production to the point of sale. As bookkeeping & VAT service providers in Mansfield, Brealey & Newbury can provide you with a comprehensive overview of what VAT is, how it works, and what you need to do as a new business owner.
What is VAT?
VAT is a form of indirect tax that is levied on most goods and services provided by registered businesses in the UK. It's also charged on goods and some services that are imported from countries outside the European Union, or goods coming from EU countries.
VAT Rates
There are three rates of VAT: standard, reduced, and zero-rated.
Standard rate: The standard rate is 20%. It's applied to most goods and services.
Reduced rate: This rate is currently 5% and applies to certain goods and services, such as children's car seats and home energy.
Zero rate: As the name suggests, a 0% rate applies to certain goods and services, including most food and children's clothes.
Please note that some goods and services are exempt from VAT or may be subject to a relief from VAT.
When to Register for VAT?
As a new business owner, you must register for VAT if your VAT taxable turnover is more than £85,000. This is the total value of everything you sell that isn’t exempt from VAT. You can also voluntarily register for VAT if it suits your business, for example, to reclaim VAT on your purchases.
How to Register for VAT in the UK
You can register for VAT online on the UK Government's website. Alternatively we can do this for you. Once registered, you'll receive a VAT registration certificate confirming your VAT number, the date of your first VAT return and payment, and your 'effective date of registration'.
Filing VAT Returns and Paying VAT
Once registered for VAT, your business is required to file VAT returns, usually every three months. These returns should detail the total sales and purchases your business has made, the amount of VAT owed, the VAT that can be reclaimed on purchases (known as input tax), and the total VAT due to HMRC.
Making Tax Digital (MTD) for VAT
Since 1st April 2022, all VAT registered businesses must keep digital VAT records and file these digitally to HMRC. Contrary to the impression given by the various book-keeping providers such as Sage, Quickbooks Xero etc., this does not mean that you have to use one of these systems.
HMRC specifically state that spreadsheets are an acceptable format for MTD, the only requirement is that the spreadsheet uses formulas to wok out the VAT due and that the spreadsheet is digitally uploaded to HMRC using bridging software such as our Tax Calc VAT filer.
Whilst we are more than happy for clients to use a bookkeeping package, it is not a requirement for MTD and we can provide an Excel spreadsheet for clients to manage their VAT. Alternatively, we can complete the VAT returns from start to finish for you leaving you with more time to focus on working rather than doing paperwork.
Understanding VAT is a critical part of running a business in the UK. By ensuring you're aware of when and how to register, how much to charge, and how to handle VAT returns, you'll be setting your business up for a smooth financial journey. The team at Brealey & Newbury accountants can help to ensure you're fully compliant with all aspects of VAT through our comprehensive Bookkeeping & VAT service.