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VAT (Value Added Tax)

VAT planning is essential if you want to make the process as easy as possible. As accounting specialists, we can manage your VAT returns, ensuring that you reclaim as much as possible of any VAT that you pay.

Table of Contents

Value Added Tax (VAT)

What Is VAT?

VAT is value added tax, which is charged on most goods and services within the UK and EU. Currently, there are three tax rates of VAT:

  • Standard Rate (20 per cent)
  • Reduced Rate (5 per cent)
  • Zero Rate (0 per cent)

As well as these three above VAT rates, certain goods and services can also be exempt, or outside the scope of VAT.

Why Should I Register Voluntarily For VAT?

There are several reasons why you should consider registering for VAT:

  • It can give the impression to customers and suppliers that your business is reputable and credible.
  • If your business turnover is around the £85,000 level, then registering voluntarily means you avoid the likelihood of attracting any penalties if you go over the VAT registration limit
  • You may be eligible for VAT refunds which are good for your cash flow. This can be is especially true in the start-up phase of your business. At this stage, although your sales may be low, you will most likely be incurring costs. You could be claiming some of this money back from HMRC.
  • When you register for VAT you can reclaim any VAT incurred on services you have paid for up to six months before your registration, and up to four years for any goods that you still have.

How Do I Register For VAT?

You can complete VAT registration online or, as your accountants, we can do it for you.

The online application will ask you several questions about your business, as well as future trading expectations, and whether you want to register for standard or or flat rate VAT.

What Is The Difference Between Standard Rate And Flat Rate?

  • Standard Rate VAT is open to everyone and means you can reclaim VAT on any eligible purchase or expense you make. Standard rate VAT registration is generally the best route to go down if your VAT-taxable expenses are over 2 per cent of your turnover.
  • Flat Rate VAT is available if your turnover is less than £150,000 and involves using an industry sector VAT rate that HMRC determines. You pay this over to HMRC. In the flat rate scheme, you do not reclaim VAT on purchases or expenses, unless it is on certain capital assets over £2,000. To calculate the amount of VAT you need to pay HMRC, you add the standard rate of VAT (20 per cent) to your net invoice, which your customer then pays you. You pay HMRC the VAT based on your industry sector.

We can help you decide which VAT rate is best for your business.

What are the Reporting Requirements for VAT?

Usually you submit a VAT HMRC every three months. This period is your accounting period.

Your VAT return records consists of:

VAT Calculations

  • VAT due this period on sales/other outputs
  • VAT due this period on acquisitions from other EC Member States
  • Total VAT due (i.e. the sum of both figures above)
  • VAT reclaimed in this period on purchases/other outputs (as well acquisitions from EC Member States)
  • VAT to reclaim from the HMRC

Sales and Purchases Excluding VAT

  • Total value of sales/any other outputs excluding VAT (including supplies to EC Member States)
  • Total value of purchases/any other inputs excluding VAT (including acquisitions from EC Member States)

EC Supplies and Purchases Excluding VAT

  • Total value of supplies of goods/all other outputs excluding VAT to other EC Member States
  • Total value of acquisitions of goods excluding VAT from EC Member States

You must submit a VAT return even if you have no VAT to pay or reclaim.

You must submit it, along with any VAT tax payable, by one month and seven days following the accounting period.

For example, if your VAT return covers the period January 1 to March 31, the VAT return and payment must reach HMRC on or before May 7.

If you are late in doing this, you may end up with a penalty or surcharge.

How Do I Pay?

The easiest way to pay your VAT and to ensure payments are never late is to set up a direct debit via your online VAT account.

We can do this for you, acting as your agent.

If you don’t have a Direct Debit set up, there are alternative methods of payment shown here.

What If I Don’t Submit Or Pay On Time?

HMRC will record a default if you fail to submit your VAT return by the deadline, or fail to pay any VAT due by the due date.

Once you default you will enter a 12-month default period.

If you default again during this time, HMRC extends your default period by a further 12 months.

After the first default, you will also be liable to the following surcharges per default.

If your annual turnover is LESS than £150,000:

  • Second: no surcharge
  • Third: two per cent (none if under £400)
  • Fourth: five per cent (none if under £400)
  • Fifth: 10 per cent or £30 (whichever is greater)
  • Sixth or more: 15 per cent or £30 (whichever is greater)

If your annual turnover is MORE than £150,000:

  • Second: 2 per cent (none if under £400)
  • Third: 5 per cent (none if under £400)
  • Fourth: 10 per cent or £30 (whichever is greater)
  • Fifth: 15 per cent or £30 (whichever is greater)
  • Sixth or more: 15 per cent or £30 (whichever is greater).

This may seem complex, but with our help, we’ll make sure you’re managing your VAT properly.

How We Help You with VAT

Using Xero software, we can help you manage your VAT:

  • First, we check that you’re charging VAT correctly, and advise you on any changes you need to make
  • For your VAT return, we check your top 10 sales invoices to see if you’re applying the amount of VAT and check for patterns to ensure you claim maximum relief
  • For your VAT reclaiming, we check your top 15 purchase invoices
  • We make sure that you are being VAT-compliant and analyse your transactions using in-house software, reporting any anomalies or inconsistencies back to you
  • If we’re not currently doing your bookkeeping, we will also review this as part of our service.

We’re here to make sure that you’re VAT-compliant, and that you’re reclaiming everything you should.

It’s that straightforward.

Traditional Accounting with Clear Principles

Based in London, Venn Accounts are a traditional accounting firm. We make sure our clients are clear about what we can do for them, supporting them on every step of the way.

To speak to a member of our team about our VAT accounting services, contact Venn Accounts directly on 02080882590 or email enquiries@vennaccounts.com.