Value Added Tax or VAT is a tax added to certain products and services.
If you have your own business, then you will need to consider whether the VAT rules and regulations apply to you and the service or products you supply.
Does VAT apply to me and my business?
As a general rule, if your turnover in any 12-month period exceeds or is likely to exceed £85,000, then you may need to consider registering for VAT.
Registering for VAT can be done online on the HMRC website, and you will be asked a series of questions to establish when you need to register, the frequency of your returns, and if you are going to join any of the several VAT schemes available i.e. Flat rate or a retail scheme.
The VAT Return Process
- Once registered, you will be issued with a VAT number that you need to include on your invoices to your customers along with a breakdown of the VAT you are charging.
- You will also, in most cases, be able to claim back the VAT on business purchases you make, so it’s really important to keep all of the receipts for the things you buy.
- At the end of your VAT period, you will need to declare to HMRC the value of sales made with the appropriate VAT rates charged and similarly, the value of purchases made and their applicable VAT amounts.
- The VAT return will calculate the amount of VAT you need to pay to HMRC or that you can claim back from HMRC based on the information you have prepared.
Understanding VAT Deadlines
- VAT comes with its own set of rules, regulations, and reporting requirements so it’s important you understand all of your obligations and seek advice if you are unsure of what you need to do.
- There is a newly reformed VAT points system (introduced in January 2023) to work out the penalties incurred by late filing or payment or any inaccuracies in your returns.
Common Mistakes to Avoid
- Common errors include choosing the wrong rate of VAT or the incorrect tax point for declaring VAT due or paid.
- Bookkeeping errors, such as duplicated or missing entries, can also caused errors in your VAT calculations.
- VAT is a hugely vast and complex tax and there will be specific guidance for your business depending on the sector it operates in, for example hospitality, construction or education.
Tips for VAT Return Management
- Using cloud accounting software can make dealing with VAT much easier and it will also ensure you are MTD compliant.
- If you are unsure how to use your software to assist with VAT reporting, consider some cloud accounting software training and support from an expert.