Vat-Introduction Premier Company Formation

VAT Introduction

Value Added Tax or VAT, is an indirect tax that is levied on goods and services. The business has to be vat registered in order for it to charge vat on the sale of goods or services. Any VAT element collected via sales by a business is paid to HM Revenue & Customs.

Not all goods and services are subject to VAT. There are three types of good and services:

Standard rated: these are most of the good and services for example Computers, Telephone, Office Rent etc. A Vat of 20% is charged on top of the price of the goods or services in most cases. However a reduced rate of 5% is applied on utilities such as electricity bills.
Zero Rated: these are mostly food and clothing items where the VAT rate is zero
Exempt Items: These items are outside the scope of VAT and include financial services, medical services etc.

Who Can Charge VAT

A business that is registered for VAT can charge VAT to its customers. A business is required to apply to register for VAT once its turnover (sales) exceeds £83,000 in a 12 months period. However, you can register for VAT on a voluntary basis before you get to the turnover of £85,000 You can only start charging VAT once HMRC has approved your VAT registration and you have been given a VAT Registration number. Your invoices should clearly mention your VAT registration number, the VAT rate you have applied to the sales amount and the VAT amount. Any VAT that a business charges on sales is referred to as output VAT and any VAT a business pays on goods and services it buys is called input VAT.

What Happens After Business is VAT Registered

Once a business is VAT registered they are required to file VAT returns which are normally filed every 3 months. A company registered for VAT, needs to record its sales and purchases in a manner that clearly shows the amount of output and input VAT. Using an online accounting system can help ensure that sales and purchases are recorded in a manner that would facilitate preparation and submission of VAT returns.
A VAT return would normally needs to disclose:

Output VAT
Input VAT
Standard Rated Sales
Zero Rated Sales
Standard Rated Purchases and Expenses
Zero Rated Purchases and Expenses

It requires book keeping to be done properly to ensure the amounts reported to HMRC are correct. Incorrect reporting or mistakes can result in heavy penalties from HMRC. The reporting requirements can be more complex if you trade with countries outside the UK. Post Brexit the VAT rules have become far more complex if you wish to import or export good or services to an EU country.Using the services of Premier UK can help you ensure that the VAT returns have been reviewed by a qualified professional giving you an extra peace of mind.