Value Added Tax (VAT)

VAT is a tax chargeable by HMRC on certain supplies and services. The VAT rates are standard (20%), reduced (5%) or zero rated.

If you anticipate your turnover (VAT chargeable supplies or services) reaching the VAT threshold (currently £85,000), you must register your business for VAT. You can also voluntarily register for VAT even if you are within the threshold.

There are different schemes for VAT you may be eligible for such as the flat rate scheme and annual scheme. You can also opt to prepare your returns on a cash accounting basis rather than the standard accruals basis which may assist your cash flow. You do not need to notify or request consent from HMRC.

VAT returns are normally filed quarterly and it is really important that you report all sales information accurately and that all purchase information included on a return is supported by a valid VAT invoice. In order for an invoice to be valid, it must state on the invoice that it is a VAT invoice, the invoice should contain the VAT number of the supplier and the VAT amount/rate should be set out on the invoice. The VAT invoice should also be addressed to the VAT registered business name. This is very important as some suppliers can put a contact name so ensure that any supplier accounts are set up in the registered company or business name.

There are also rules around issuing sales invoices; the invoice should be marked as a VAT invoice, the business VAT number must be included on the invoice and the VAT amount/rate should be set out on the invoice.

HMRC will penalise all businesses for non payment of VAT as well as not filing returns on time. HMRC will allow a business to default once without charge, but a subsequent default will result in a 12 month surcharge period, during which you can be charged a surcharge of between 2% and 15% of the VAT due. It is therefore really important to be on time with submitting VAT returns and making the payments.

The rules around VAT are complex so as a business liable to VAT, you must make sure you are compliant. Making Tax Digital (MTD) for VAT is also coming into force so if you are above the threshold, you need to make sure you are prepared for MTD. If you are not yet VAT registered, you need to keep your turnover under review in case you reach the threshold. If you need assistance or unsure if you have any VAT duties, we can help!