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A brief overview of value-added tax

If you run a business in the UK, it is important that you understand the Value-Added Tax (VAT) system.

By law, if your business turnover is above the level set by the government, you have to register for and charge VAT. The level for the 2015/16 tax year is set at £82,000.

If your taxable turnover is at that level or is likely to reach it, you have to register for and collect VAT from your customers. You must also do so if you have goods delivered to your UK business by EU firms that are worth more than £82,000.

What is VAT?

VAT is a tax that is charged on the vast majority of products and services. In other words, it is a consumption tax. The amount charged is set in each budget, and the amount varies depending on the goods or service being provided.

Who collects the tax?

The seller collects the tax from customers and passes it on to the government. This is a big responsibility, and is something firms cannot afford to get wrong. They have to charge the right level of tax and pass that collected tax on to the government, in accordance with the time limits set out in the regulations.

The consequences of getting it wrong

Firms that fail to register when they should, or make mistakes when collecting and passing the tax on, face potentially serious consequences. If HMRC suspects that a firm is not dealing with VAT correctly, it will normally audit that company.

If it finds issues, it will take action.

Doing your VAT

The easiest way to handle VAT is to charge your customers the tax when you send out your invoices. You need to keep a record of each transaction that involves the tax, and do so for at least six years. Every three months, you need to submit a VAT return and pass the tax collected on to the government.

Once you become VAT registered, you can claim back any VAT that you have paid when buying products and services for your business. This is done when you fill out your tax return. Again, you need proof and will need to keep it for several years.

Why employ a professional?

Keeping accurate VAT records is not easy and, if you get it wrong, the consequences can be serious. Employing a professional to do it for you is the best way to avoid issues and save yourself time.

Posted by Louise
June 12, 2015
Features

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