VAT explained

33 Group

Sep 14

2 min read

Of all the taxes in the UK, VAT is the most straightforward.

If your sales are over £90,000 in a rolling 12 month period, you have to register for VAT 30 days after the date you went over the registration limit. However, if you can show that this was a one off and you won’t go over it again in the following 12 months, then you can apply to HMRC to be exempt from registration.

If your sales are under £90,000 you can still voluntarily register the decision is entirely yours (see below).

You will be a given a VAT number when you register and must quote this on any invoice raised to a customer. The number goes into a national database so it can be checked by anyone to prove it’s real.

The VAT rate is 20% so if in the past you invoiced say £500 to a customer you now invoice £500 plus VAT and show the VAT separately on your invoice, making the total you receive £600. You file a return every 3 months and all the VAT charged to customers must be paid over, less any VAT you have paid out to suppliers. The fact you can claim back VAT you have paid means that you may wish to register voluntarily.

The VAT return is made up of 9 boxes to complete but assuming you have no EU sales or purchases then you will only complete 5 of those, which essentially is the VAT you have charged, the VAT you have paid, the VAT you owe or are owed and the net value of sales and costs.

In the good old days, you would complete a paper form and send it in the post to HMRC with a cheque. Now you file it digitally. Whilst your Government Gateway account has a summary of your VAT, what you owe, deadlines etc you can’t file it through there you have to use a piece of software and unfortunately there isn’t a free program to use. If you file it yourself the cheapest is around £8 a return.

You can also apply to join the VAT flat rate scheme which makes preparing the return even easier. HMRC publish a list of rates you can use depending on what industry you are in e.g. hairdressers can use a 13% rate, mechanics 8.5% and general builders 9.5%.

If you use a flat rate scheme you still charge 20% VAT but only pay over to HMRC the VAT calculated like in the above examples. You can’t however claim any VAT back on your purchases, so it’s a maths exercise before registering as you can’t chop and change once you are on it, if you leave it you are unable to re-join for 12 months.