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The Essential Guide to Business VAT

What is VAT?

VAT (Value Added Tax) is a levy on the sales (goods or services) by VAT registered businesses in the UK.

A business must keep an eye on turnover, on a rolling 12 month basis. When this reaches £85000 (this may change, so please check the HMRC website for the latest threshold), a business must register for VAT.

So what next?

When you register HMRC will send you a VAT certificate with your VAT quarters on. You then can charge an additional 20% on your standard rated sales – ‘input tax’.

It is worth researching if your saleable items/services are standard rated, lots of food, for example is zero rated.

How do I register?

You can normally register online at HMRC: https://www.gov.uk/vat-registration/how-to-register

You will need to know your turnover, business activity and bank details. You should also know when you hit the threshold or will be. The registration date is known as your date of registration an dyou will need to pay HMRC any VAT die from this date.

Can I claim back VAT?

Yes on all of your purchases that have a valid VAT receipt/invoice – you can claim back the VAT. This is known as ‘output tax’. It is really important to check that you have a valid VAT invoice/receipt, without one you can not claim back the VAT. It is good to get in the habit of keeping these and even better, attaching them in Xero so you have a permanent record. You are meant to keep all records for 6 years plus the current one, so recording these digitally certainly saves room in your office. It is also important to check as some suppliers may not be VAT registered and in which case – VAT should not be claimed back.

Can I claim back historic VAT?

Yes, the rules are you can go back 4 years for goods that you still have or were used to make other goods that you still have or 6 months for services. For example you may have a laptop you purchased a year ago, if you have the receipt you can claim the VAT back. A service may be something like accounting or legal services that were purchased in the last 6 months prior to your VAT registration.

If you are unsure if you can claim for an item HMRC have a handy VAT helpline: 0300 200 3700

You can appoint an agent to deal with your VAT returns for you. Most VAT registered businesses are know registered for MTD and this means you submit each return electronically through software. Xero and other accounting software link directly to HMRC.

Quirky rules

You can not claim back the VAT on item that you use personally, for example you purchase a load of stationery but decide to use it for yourself and not your business, you will be unable to claim back the VAT on this.

You don’t have to hit the threshold to register for VAT, there are some instances when it is beneficial such as a shop that is selling mainly zero rated food supplies.

VAT on vehicles

The vehicle must be solely and exclusively for business use. You must be able to prove there is no personal use. Leased vehicles have different rules again for example 50% VAt can be reclaimed if you have leased a vehicle to replace a company van that is off the road. Using it for less then 10 days? 100% can be claimed back.

If you are unsure about VAT and are based in Cornwall or further afield get in touch for a chat, we can manage your VAT returns for you as part of our bookkeeping service.

The information featured in this article is for guidance only, no liability is accepted for the opinions it contains.

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