What Is VAT And How Does It Affect My Business?

17th August 2020 | Tax

There are all sorts of taxes and levies that businesses, big or small, must pay in order to operate in the UK. While it might seem frustrating to have to pay these they are necessary and should be taken seriously.

One of the main taxes a business has to pay is VAT, Value Added Tax. It’s a relatively straightforward tax but there are few nuances that are worth going over to avoid any financial headaches. So, in today’s blog, we’re going to cover VAT, what VAT is, its current percentages, the VAT threshold and how it impacts your business.

Here at Williamson & Croft, we have helped a huge range of businesses with their accounting efforts and tax setups. If you work in industries such as PropertyConstructionProfessional ServicesDigital & CreativeRetail & eCommerce or Technology & Software then be sure to get in touch with the experts here at Williamson & Croft.

What Is VAT?

As we mentioned earlier, VAT stands for Value Added Tax and is a tax that is collected any time value is added to a product or service. Businesses pay VAT to HMRC when they sell or hire out their goods or services. VAT applies to consumer and business sales. VAT is a consumption tax, therefore, it’s paid by the customer rather than the company that sells the product or service. This makes it an indirect tax because the business is collecting the tax on behalf of the business.

VAT registered businesses charge their customers VAT on their products but they also get charged VAT on the goods and services they buy, such as raw materials or stock.

Registering for VAT depends on the annual turnover of your business and the types of goods it sells. There are also different rates of VAT applicable to different types of products.

What Is The VAT Registration Threshold?

The VAT threshold is based on your VAT taxable turnover which is the total value of everything you sell that isn’t VAT exempt.

VAT registration

The threshold is more than £85,000.

Registration for distance selling

If you are an overseas business looking to sell goods in the UK, the threshold is more than £70,000.

Registration for bringing goods into the UK from the EU

This is also more than £85,000.

Deregistration threshold

If you’re no longer eligible for VAT you must cancel your registration, the threshold for this is less than £83,000.

What Percentage Is VAT?

The standard VAT percentage rate is 20% and applies to the vast majority of products. However, there is a reduced rate (5%) on some goods, like children’s car seats for example, and a zero rate (0%) on food and children’s clothes.

What Is My VAT Number?

A VAT registration number (also known as a VAT number) is unique and gets issued to businesses that are registered to pay Value Added Tax. This number can be found on the VAT registration certificate that HMRC issues you. If you’re looking for the number of another business you should find this on the invoice that they issue.

The VAT number is 9 digits long and often starts with GB at the front. It’s important to check this number because you could end up entering an invalid number which would invalidate your invoice to HMRC.

How Does VAT Impact My Business?

The main way that VAT impacts your business is to do with the amount you charge people for your goods and services. Once registered you must charge a further 20% on all sales when the invoice is paid which is when VAT is deducted.

Benefits Of Being VAT Registered

  • You can reclaim VAT that you have paid for business services
    • Supplies like computers, chairs, desks and utilities have VAT applied to them. You have to pay VAT on these at the point of purchase, but you can reclaim it from the government when filing taxes.
  • It looks professional
    • Being VAT registered is a good indicator to other businesses that you are a professional outfit that is doing serious business.
  • Your business can look bigger than you actually are
    • By being registered (even if your turnover is less than £85,000) it can give the appearance of being larger than you are. This can be very appealing to investors, lenders or suppliers because they’ll assume your turnover is over £85,000.

Need Advice About VAT Or Looking For An Accountant In Manchester To Help With Your Business’ Finances? Get In Touch Today.

Our team’s level of expertise and years of experience makes us confident we can help your business with a whole host of solutions. From accountingtax and professional advice right the way through to R&D tax credits and audits, we can help you in all manner of ways. Be sure to get in touch with us today on 0161 399 0121 or drop us an email to find out more.

Williamson & Croft is a market leading accountancy, advisory and tax firm with particular specialisms in property, construction, retail, digital and creative, technology and professional services.

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