VAT Returns, VAT Schemes, Rates and Responsibilities
Working as a UK business or company can be a challenge with all the financial obligations you must meet. This article outlines:
- What VAT is.
- What schemes are available.
- What obligations must be met.
What is VAT:
VAT is valued added tax. This tax is added to most products and services sold by VAT-registered businesses. This can be a variety of rates and it is important to understand whether the goods / services being provided are under the correct rate or not.
A business / company must register for VAT if their turnover exceeds £90K based on a 12-month rolling period or if they expect to exceed this within the next 30 days.
A business must also register regardless of VAT taxable turnover if all of the following are true:
- You are based outside of the UK.
- Business is based outside of the UK.
- You supply any goods or services to the UK or expect to in the next 30 days.
Businesses can choose to voluntarily register for VAT which does have the benefit of reclaiming the VAT on purchases and to seem larger to get further business.
VAT Schemes Available:
VAT schemes are designed to simplify the way some VAT registered businesses calculate and account for VAT to HMRC. This is designed to save the SME businesses time in their administration allowing them to focus on growing their business.
They do not change the amount of VAT business charge for their products and services. The schemes must be voluntarily joined.
Flat Rate:
This scheme allows you to work out what you owe HMRC in VAT as a percentage of your gross turnover.
You only use this scheme if you are a small business with an annual taxable turnover of £150K or less excluding VAT.
The amount of VAT you charge will depend on the industry you are in.
Other Schemes:
There are other VAT schemes you may be able to join depending on your VAT taxable turnover and type of business.
If your annual taxable turnover is £1.35 million or less you might be able to join:
- VAT annual accounting scheme. This is completing one VAT return at the end of the year and making payments throughout the year. At the end of the year your payments to VAT will be taken off the VAT return and you pay the difference.
- VAT cash accounting scheme. This is were you pay VAT to HMRC when your customer pays you rather than when you invoice them. This helps with cashflow.
There are two further VAT schemes available to retail businesses or businesses that sell second hand goods:
- A VAT margin scheme – paying the VAT on the value you add to the goods you sell rather than on the full selling price of each item.
- One of 3 VAT retail schemes – calculate the VAT once with each VAT return rather than calculating it for each sale you make.
Responsibilities as a VAT Registered Business:
There are serval responsibilities you must meet as a VAT registered entity. These are:
- Include VAT in the price of all goods and services at the correct rate.
- Keep records of how much VAT you pay for things you buy for your business.
- Account for VAT on any goods you buy for your business. Please note this must be.
- Account for any VAT on any goods you import into the UK.
- Report the amount of VAT you charged your customers and the amount of VAT you paid to other businesses by sending a VAT return to HMRC. This is usually every three months but can be yearly or monthly.
- Pay any VAT the business owes to HMRC on the return.
The VAT is usually the difference between how much VAT you have charged your clients and the amount of VAT you have paid to other businesses. This can be calculated on the VAT return by taking Box 3 minus Box 4 giving you the figure for Box 5 (the amount repaid or reclaimed).
Knowing the rate to charge can be difficult if you are just starting your VAT journey. The standard rate of VAT is 20% but below is a guide to others available:
| % 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% | For example most food and children’s clothes |
| Exempt | Exempt | For example bank charges, insurance, postage stamps, MOTs |
Learn more about penalties here: Click here
Struggling with VAT returns? Visit our website for more information: https://www.jsrmanagement.co.uk/
By Mark Lawson
