VAT, or Value Added Tax, is a consumption tax applied to most goods and services sold in the UK. But for businesses, understanding how VAT works can be a crucial turning point to stay compliant with HMRC regulations and avoid penalties. In this blog, you will learn all about it and how an accounting firm can help you streamline it while you focus on growing your business.
But what is a VAT?
A VAT is charged at each stage of the supply chain, right from the production line to the final sale. While businesses collect VAT from end users or consumers, it is the customer who ultimately bears the cost. Only registered businesses act as tax collectors on behalf of HMRC (HM Revenue & Customs).
How is VAT Registered?
Businesses must register for Value Added Tax if the taxable turnover exceeds £90,000 (as of 2024). Solo traders or smaller businesses can voluntarily register, which is very beneficial if they want to reclaim VAT on expenses. Once registered, business owners will receive a VAT number and charge VAT on eligible sales.
Seek the help of a professional, like a tax accountant, to register for the VAT. Some goods and services, such as financial transactions, educational expenses, etc., are exempt from VAT. This can also be handled by a licensed professional.
How Businesses Handle VAT?
Registered businesses must:
- Charge VAT on taxable sales
- Maintain records of all VAT charged
- Submit VAT returns (it is done every quarter of a fiscal year)
- Paying HMRC the input tax (i.e. the difference between VAT charged on taxable sales and the VAT paid on purchases)
Any mistakes in this filing can cause compliance issues and costly penalties down the line. To avoid that, seek the services of an tax accountant. Plus, they can maximise VAT reclaims where possible.
