VAT: What is it and how does it affect my business?

VAT: What is it and how does it affect my business?

At this time of year, you might begin to hear talk of VAT, or Value Added Tax, a lot more on the news. This is because the Chancellor of the Exchequer announces their Autumn Budget at the end of October each year. Put simply, the Chancellor is the member of the Government responsible for all things money, and the budget is the government's plans for the U.K Economy, including taxation and spending. This guide will explain the basics of VAT, and how it impacts the world of business.

Value Added Tax (VAT) registration in the UK is a mandatory requirement for businesses whose taxable turnover exceeds the current registration threshold. The current threshold is £90,000 in a rolling 12-month period.

Once a business is registered for VAT, they are required to charge VAT on all eligible goods and services that they provide to customers. VAT registration also allows businesses to reclaim any VAT that has been paid on business expenses, such as packaging, mileage or marketing to name a few. There are different VAT rates for specific goods and services, which you can see below:

                                   % of  VAT           What  the rate applies to

Standard  rate      20%                      Most  goods and services

Reduced  rate      5%                     Some  goods and services, e.g. children's car seats and home energy

Zero  rate             0%                     Zero-rated  goods and services, e.g. most food and children's clothes

Exempt                                           Some things are totally exempt, like postage stamps

A VAT return needs to be submitted by all VAT registered businesses at regular intervals - this is usually quarterly. A VAT return details the VAT that has been collected from customers purchasing goods or services as well as detailing the amount of VAT paid on purchases that are business related. If the VAT amount charged on goods and services exceeds the amount of VAT paid on purchases for the business, this will result in a VAT liability which is owed to HMRC. If the business has paid more VAT on purchases than the amount charged to customers in the quarter, this will result in a refund being due from HMRC. The deadline for a VAT return to be submitted and paid is one month and 7 days after the relevant quarter has ended.

At Toast, our expert advice and cloud accounting services ensure that your business's VAT returns will be hassle-free.

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