A Quick Guide to VAT for UK Businesses

A Quick Guide to VAT for UK Businesses

What is VAT?

Value Added Tax (VAT) is a type of end consumer tax that is generally assessed incrementally. VAT is usually levied on the price of a product or service at each stage of production, distribution, and/or sale to the end customer. Ultimately, it is just the additional charge on goods and services supplied from a business to its end customer, whether that be an individual or another business.

Businesses can also be charged VAT across ‘taxable supplies’, such as:

  • business sales – for example when you sell goods and services
  • hiring or loaning goods to someone
  • selling business assets
  • commission
  • items sold to staff – for example, canteen meals
  • business goods used for personal reasons
  • ‘non-sales’ like bartering, part-exchange, and gifts

As a VAT registered business, it is imperative to account for your VAT at the correct rate across any goods or services; however, you may reclaim any VAT you’ve paid on business-related goods or services.

There are some exemptions for product charges in relation to VAT such as children’s clothing, footwear, selling goods as part of a hobby, or donating to a charity. For further information on this, have a look at the government guidance. If you have any specific queries on your business operations and their VAT requirements, get in contact with us today! Many of our specialist consultants are experts in this field and will be happy to advise on accurately accounting on business operations.

VAT on Digital Services

Accounting for VAT on digital services is usually done through the VAT MOSS scheme. The way that UK businesses account for VAT through the VAT MOSS scheme has changed post-Brexit, and many will have to re-register under a different scheme than they were using previously. To find out more on how to account for VAT on digital services as a UK company from January 2021, have a look at our previous insight.

Registering for VAT

When to Register

Businesses in the UK must register for VAT through the HMRC if/when their annual taxable turnover in the last 12 months or the next 30 days is greater than the VAT threshold. The threshold amount is generally reviewed and updated in the Chancellors’ regular budget statements, and currently, it stands at £85,000. This isn’t set to change until 1 April 2022, so new SME’s will be able to use this figure to conduct operations accordingly.

If your business’s turnover is below the threshold, you can still voluntarily register for VAT, but you are under no obligation to do so. There are pros and cons to registering for VAT voluntarily. To discuss this further, contact one of our specialist consultants today, where they will be able to advise on best practice.

How to Register

Registration for VAT is via the Gov.uk VAT registration pages. This is the same for those who have to register and those who are doing so voluntarily.

Once you have registered for your VAT number, this then creates a VAT online account (commonly known as a ‘Government Gateway Account’) which is necessary for submitting VAT Returns to HM Revenue and Customs (HMRC). There may be some circumstances whereby your VAT registration will need to be registered via postal service instead of online. Registering via post using VAT1 is generally used for ‘registration exception’ reasons or if you have decided to register division or business units of the body corporate under separate VAT numbers.

On top of VAT1, there are additional forms that can be used for various business reasons. If you are unsure of which is the best path to take when registering your business for VAT, get in contact today, and one of our specialist consultants will be able to advise on best practices.

How does VAT work once I have registered?

Once you have received your VAT number, you must include this on all sales invoices you issue from that point. You won’t need to worry about changing or reissuing any invoices from before this point, but it is imperative you keep a note of your VAT registration date, to be able to account for your VAT effectively.

Checking VAT numbers on invoices

VAT numbers are generally 9-12 digits long and start with GB. It is usually advised to check and validate all VAT numbers that you may encounter on invoices to ensure credibility – even though there is a VAT number stated on an invoice, it may be invalid or expired.

UK Based companies were previously accustomed to checking a VAT number through the reliable VAT Information Exchange System (VIES), provided and maintained by the European Commission. Ahead of the UK officially leaving the European Union on the 1st January 2021, HMRC launched their VAT checker service formally on December 1st, 2020.

The new tool provided by Gov.uk allows businesses to check if the number is valid and to check details of the company – including the names and addresses, to ensure ultimate legitimacy. Companies will require their own VAT number to use this service, and the service will only be reliable across UK VAT-registered businesses.

When using this service, businesses will also be able to obtain official proof of validation in the form of a unique ‘consultation number’. This will allow businesses to show evidence to their tax administration that they have validated this number at a given time. To choose this option, simply activate the checkbox provided below the number entry box and enter your VAT registration number.

VAT Returns

If/when your business is VAT registered, you must report to HMRC the amount of VAT you’ve charged and the amount of VAT you’ve paid. This is usually done in your VAT return, every 3 months (every quarter). The VAT return is ultimately a summary of your earnings, which includes both the VAT charged for your goods/services and the VAT paid for goods/services (your expenses). The difference between these amounts will determine how much you need to pay or claim in your quarterly VAT return.

Your VAT returns must account for the full value of all your taxable supplies, even if you:

  • Receive goods or services instead of money
  • Haven’t charged VAT to the customer (whatever price you may have charged will be treated as VAT inclusive)

How can Animo help?

Covered above is a short insight into VAT and the most common ways to register and account for it. Doing so correctly and effectively is essential to ensure lawful operations; however, it can be confusing for many businesses to ensure that they are accounting for their VAT accurately. Many of our consultants at Animo are experts in VAT Requirements and have many years’ experience in advising and supporting a range of businesses. If you are unsure or worried about the upcoming VAT return deadline, and seek guidance on ensuring accurate accounts – get in contact with us today by calling +44 (0)207 060 0835, emailing us at info@animoassociates.com or filling out our contact form below, and one of our consultants will be happy to advise on best practice for your business.

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