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What business owners need to know about VAT

If you run a business in this country, it is important to understand the Value Added Tax (VAT) system and to determine whether you should be charging this tax or not. Even firms outside the United Kingdom that sell goods here are affected by VAT regulations, but for the purposes of this article, we are only considering UK-registered businesses and their obligations.

The first thing to establish is whether or not the goods and services you sell are exempt from VAT. If some of what you provide is not exempt from this consumption tax, you may have to register for VAT. However, very few services and goods are exempt, so most firms with the right level of turnover end up having to be VAT registered.

Currently, if a UK firm has a 12-month turnover of £81,000 or more for items that are not exempt from VAT, it has to charge VAT. On the other hand, if its turnover on VAT-chargeable goods is under £81,000, they do not have to charge the tax.

The moment a firm’s turnover breaks through the threshold, it must contact HMRC and register to join the Value Added Tax system. It is important to note that the turnover threshold applies across a rolling 12-month period – not the standard tax year.

Firms need to be careful to collect the right amount of VAT and pass that revenue on in a timely manner to the Government. All companies have to keep complete records of all purchases and sales.

If your records are not in good order, you will be fined. HMRC officials can visit and carry out a VAT inspection at any time, so it is vital that you keep your records up to date.

VAT records need to be kept – in paper form or electronically – for a minimum period of six years. However you choose to keep your VAT records, it is wise to keep a full backup.

Posted by Mark
January 8, 2015
Features

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