You probably hear the word VAT all the time if you are in business, but what does it really mean to be VAT registered?
VAT registration is an obligation if you are making taxable supplies and exceed the threshold of £85,000 (2018 – see current years here) but you can also volunteer to register for VAT at any point if you are making taxable supplies.
Once you are registered, in basic terms, you become a collector on HMRC’s behalf and must charge 20% VAT on all your taxable sales unless a special rate applies to your services or products.
This then needs to be paid over to them, but before you do, you can take away the VAT you have paid on anything you have bought for use in the business that you have incurred VAT on, providing you have copies of the VAT receipt.
Therefore, you only pay over the VAT of all the VAT you have collected (output VAT) less the VAT you have incurred (input VAT).
You must complete a VAT return that then needs to be submitted to HMRC one month and 7 days after the end of your quarter. Keeping your bookkeeping up to date can really benefit you when needing to complete your VAT returns, as it keeps the workload down.
When invoicing your customers, you will need to include VAT at the applicable rate and show a breakdown of this, along with your VAT number which you will get given when you register.
Many business owners find VAT return a very stressful, complex task and therefore choose to outsource it to a bookkeeper or accountant.
We are here to help and if you would like to find out more, please book in a discovery call.