26 Sep 2018
Are you completely bewildered by the concept of VAT? Many of us are – so here’s what you need to know.
Let’s start from the beginning, what exactly is VAT?
VAT stands for Value Added Tax and is administered by HMRC. If you run a business that has an annual turnover of more than the current VAT threshold of £85,000, then you are required to register your business for VAT. You will then receive a VAT number that is unique to your business.
Once you have registered you will be required to do 3 things:
1. You must charge VAT on the goods and services you sell to your customers and other businesses.
The current standard rate for VAT is 20%. For example, if you bill a customer £1000 for a service you must add £200 in VAT on top, this means the customer is required to pay your business £1,200.
2. You will be required to pay VAT on the goods and services you buy from other businesses.
3. You will need to complete a VAT return.
The concept behind VAT is that you charge VAT and the VAT you pay balances – any difference is accounted for via your VAT tax return, which means you will either pay HMRC the amount you owe, or you will receive a refund from them with the amount they owe you.
What is a VAT return, you ask?
A VAT return calculates how much VAT you should be paying to HMRC.
You will be required to complete a VAT return every quarter. Why? Because you will then be able to show how much you have collected in VAT, this being for sales (Output Tax) and the amount you have paid to suppliers (Inbound Tax).
If you would like to discuss VAT in more depth, please get in touch with N S Accounts & Technology today. We’ll be able to answer any additional questions you may have. We’re also happy to help set your business up as a VAT-registered business.
For more information or if you have any queries please contact us on 07900 950796 or email us at email@example.com.