Firstly, lets address the abbreviation that is ‘VAT’. VAT stands for Value Added Tax and as a business your knowledge of VAT should go above and beyond what the general person may understand, because it could be the difference between your business running legally or not. If you’re a business you may need to register for and collect VAT, you can do this at www.gov.uk This will enable you to submit your VAT returns to HM Revenue and Customs (HMRC).
VAT can affect your business as you may need to add VAT to your prices, you don’t want to end up accidentally out of pocket for miscalculating. VAT is designed to be paid by the consumer, rather than the business end, so always consider your pricing carefully. You will need to pay VAT to HMRC, however the good news is that you can claim back VAT that you’re charged on business supplies, such as electronics, stationary, travel expenses and stock. If you buy something like a laptop that you use at home and in the business, you can claim part of the VAT back. You’ll need to work out what portion of the purchase is business-related and show how you worked out that portion.
Once you have applied to become VAT registered you should receive your registration certificate within 30 working days. If an agent registers you or you were unable to register online it will be sent via post, but if online registration was successful you can view your certificate on your VAT online account. From then on you will need to provide details like your turnover, business activity and bank details. Your registration date is known as your ‘effective date of registration’. You’ll have to pay HMRC any VAT due from this date.
Vat is charged at the following;
20% VAT for most goods and services. (Add £ x 1.2 to work out your new price with VAT)
5% VAT for some health, energy, protective products and services. (add £ x 1.05 to work out your new price with VAT)
0% is applied to a range of products and services to do with health, building and children’s clothing.
Some things such as insurance, antiques and educational training are exempt and other things such as statutory fees, sit outside the tax system. When you send a VAT, it invoice tells a customer how much VAT they paid on a purchase. It’s important information because some of your customers may be able to claim that tax back. If you’re VAT registered, you must issue VAT invoices. If you pay VAT on an item and then your customer doesn’t pay you can claim back the VAT from HMRC on your next tax return. If the customer pays you at a later date, you can repay the VAT then.