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What you need to know about VAT

Value Added Tax (VAT) is the tax the UK government collects on any goods or services sold by VAT-registered firms. It is also charged on some goods and services that are imported into the country.

If you run a UK-registered business, it is essential that you understand this tax and pay it. The penalties for paying your VAT late or making mistakes on your Value Added Tax return are serious; you can be fined between 30% and 100% of any VAT that you fail to pay, so it is not something you want to get wrong.

Any firm or sole trader that has sales of £81,000 or more must register for VAT. If your turnover has temporarily gone over £81,000 per annum, you may be able to register for an exemption. Firms that have a lower turnover may register for VAT, but this is voluntary. The threshold changes regularly, so always double check the most up-to-date information each year.

Once you are a VAT-registered company, you must keep records and file an annual VAT return. You have to charge the rate set by the government on any goods or services that you sell or provide.

These rates vary depending on the products or services being sold. You must show VAT separately on your invoices.

When you buy goods and services for your business, you must pay Value Added Tax. It is important to keep records of both the amount you charge your customers and the VAT you pay. You will need this information to file your return.

Once a year, you pay HMRC the difference between how much VAT you have paid and how much you collected from your customers. Our advice is that you update your VAT records regularly; trying to do it once a year is what leads to errors being made on returns.

There are three VAT payment schemes, so it is important to choose the right one for your particular business.

Posted by Peter
October 1, 2014
Features

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