VAT for business: What you need to know


VAT is a type of business TAX all members of the Common Market and European Union have to sign up to. You can only charge VAT on top of the price of your products or services if you are a VAT registered company. If you’re a VAT registered business, you must report how much VAT you’ve charged and the amount of VAT you have paid to HMRC. You MUST register for VAT if your turnover exceeds £83,000 in the past 12 months.

How does it work? If a supplier is VAT registered, then VAT is added to all sales and purchase invoiced, but only if they contain the required VAT registration number. Most items incur VAT at 20% standard, with the exception of a few types of items incurring a smaller percentage of 5% or 0%.

What is VAT free? There are only a few items that can be considered VAT free. The exact definition of a VAT free item can be hard to clarify causing issue between businesses and HMRC. Here’s a perfect example of how it can be confusing

VAT Returns Every 3 months, VAT returns can be submitted online, which is essential to calculate the different between Output TAX and Input TAX. If the Output TAX is higher than the Input TAX, then the difference must be paid to the HMRC. But in cases where Input TAX is higher than Output TAX then the difference must be paid back to the business.

There are various other schemes (details of which can be found on HMRC’s website).

  • Cash Accounting
  • Annual Accounting Scheme
  • Flat Rate Scheme
  • VAT Schemes for retailers

Selling Overseas When selling digital services to consumers in the EU, a business must do one of two things; Complete a UK VAT MOSS Scheme return quarterly and make one payment only to HMRC or apply to be VAT registered in the EU state of the receiving consumer. Many businesses in the UK will avoid the necessary paperwork but sell instead through the likes of Amazon.

For more information on VAT or to hear more about our services, call us on 0141 345 2335 or visit our website

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