Top 5 Things You Need To Know About VAT
Value Added Tax (VAT) can be something of a mystery if you’re new to business; you may not know what it is, how you register, or even what goods it can be charged on. That’s why we’ve put this post together, highlighting the top 5 things you need to know about VAT.
1. What is VAT?
VAT is a tax placed on almost all goods and services that are sold.
VAT is what’s known as a consumption tax, meaning it is the consumer that pays that tax and not the business.
The tax paid is calculated as a percentage of the value of the goods bought, meaning the higher the value, the higher the tax.
The idea is that businesses add the percentage of tax onto their goods before sale and collect the tax from the customer before passing it on to HMRC.
2. Can I offset the amount of VAT I pay to HMRC?
If your business is VAT registered, you can claim back any of the VAT you are charged on your purchases. This amount will be used to offset any VAT you are paying to HMRC.
3. What’s the percentage?
In most cases, VAT is calculated at 20%. So, for example, if you charge £100 for your services, the actual price you charge your customers would be £120, including VAT.
However, the VAT rate can change depending on several factors; for example, some consumer goods are rated 5%. In contrast, some services are classed as zero rate or exempt, so VAT doesn’t have to be paid on them.
As well as this, there’s the Flat Rate Scheme to consider when you first register for VAT. We won’t go into the nitty gritty of it here, but if you want to know more, then check out our previous post, Flat Rate Scheme - Could My Company Benefit From Using It?
4. What is the VAT threshold?
If your business turnover exceeds £85,000, you will legally have to register for VAT.
If your turnover is under this amount, but you still feel as though registering would benefit your business, then you can voluntarily register for VAT.
5. How do I register for VAT?
You can register for VAT directly with HMRC; however, we at Company Wizard have created a simple process for registering through us.
If you want to start the process, simply check out the link below.
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