There seem to be a lot of posts on here recently about VAT. So I thought I would start a thread ?maybe we can get it as a sticky if others post meaningful vat information on here.


VAT - A quick introduction:


VAT is a tax charged on most transactions in the UK.
When your business reached a certain threshold then it will have to register for VAT.
This means from the date of registration you:


·must charge vat on all your relevant sales
·you can reclaim vat where you have been charged it on your purchases


Basically you become an unpaid tax collector for HMRC as you pay to HMRC the VAT that you have charged on your goods or services less the vat you have paid your purchases.


The issue at the point of registration is can you pass the VAT onto your customers?


If your customers are vat registered then this is simply a matter of informing them that you are now vat registered, adding the vat to their sales and of course showing this on their invoice. Your customer will be able to claim the vat back so the net effect of this is nil.


If your customers are not vat registered then they will not be able to claim the vat back and the vat has to be absorbed either by them through a price increase or by you through a reduction in your profit.


The vat will also need to be shown on the invoice but as they cannot claim it back effectively they have to pay the increased price.


This could mean that your price is no longer competitive in the market and you may have to absorb some / all of the VAT into your profit margin.


When and How to Register for VAT


For information on how to do this see this link:


http://www.hmrc.gov.uk/vat/vat-registering.htm


Special VAT schemes to make life easier


A number of VAT schemes exist to make life easier e.g. cash accounting, retail, flat rate etc


http://www.hmrc.gov.uk/vat/vat-account-choose.htm


Do not avoid registering for VAT by artificially separating business activities


HMRC take a very dim view of this.

Situations that HMRC may consider a single taxable person for VAT purposes include:


·Separate entities selling to registered and unregistered customers. The VAT registered business sells only to VAT registered customers and the business not registered for VAT sells to customers who are not registered for VAT.
·The same equipment or premises being used by different entities on a regular basis. The premises and/or equipment are owned by one of the parties, who charges rent to the others. This situation may occur in businesses such as launderettes and takeaway food operations.
·Splitting up what is usually a single sale. This is common in industries such the bed and breakfast trade, where one business supplies the bed and another the breakfast.
·If you deliberately avoid registering for VAT, you may be liable to a penalty. For serious offences, the matter will be investigated and you may be prosecuted.


Full guidance on this can be found here:
http://www.hmrc.gov.uk/vat/reg-how-to.htm#3

Reclaiming VAT before you have registered


When you register you can look back over your purchases and in some circumstances you can reclaim vat:

·for goods: you can reclaim VAT up to three years before you registered for VAT
·for services: you can reclaim VAT up to six months before you registered for VAT

There are certain conditions which need to be met to be able to do this so have a look at the full guidance which can be found here:

http://www.hmrc.gov.uk/vat/reg-reclaim.htm

VAT and International Trade

The rules get more complex as you trade outside of the UK and this is an area where you may want to get help if your business has complex overseas transactions. However easy to follow guidance can be found here:

http://www.hmrc.gov.uk/vat/vat-international.htm
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Great post Elaine :)
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I think it's fairly evident I needed some advice, I think my questions are answered for now, not being VAT registered myself I never really looked into it, but I suppose we should all know how it works to avoid getting tripped up by anything silly.
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Great post Elaine :)

Thanks

I hope other will add useful advice to this so we can keep it running.
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I would add that if you feel that your VAT payover seems unfairly high, then you are probably doing something wrong.

All in all, VAT is paid on profits, so if your VAT bill seems disproportional then you are probably operating in one of the areas where there are special schemes. For example an industry involving zero rated products, retail schemes, secondhand good schemes, margin schemes. There are lots of these schemes.

So, don't ever take it for granted that your output vat is 17.5% pf turnover, if it feels unfairly high make sure you speak to a qualified accountant and ask about special schemes.
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