The SME’s Complete Guide to VAT

VAT isn’t something that many people like to think about, but it is a necessity for all businesses, regardless of its size. This is because, unlike other taxes, VAT is collected not by HMRC but by registered businesses. As a result of this, if your company is registered for VAT then you will be responsible for adding VAT to all products and services that you provide.

It can be a bit of a complicated system, so to make it as easy as possible we’ve created a user friendly FAQ to VAT:

What do I have to do as a VAT-registered business?

The key responsibility you have as a VAT-registered business is to charge VAT on your goods and services. This must then be presented to the HMRC in a VAT Return that highlights the amount of VAT you’ve charged and the amount you’ve paid, typically this is completed every 3 months.

Your business will need to account for VAT on the full value of what you’ve sold, this includes transactions whereby you’ve received goods or services instead of money or haven’t charged the customer VAT.



How often is VAT paid?

VAT is paid every quarter, by filling out a VAT form that is available online at the HMRC website.

What if I’ve paid more VAT than I’ve charged?

If your business has paid more VAT than you’ve charged then you are able to reclaim this difference for the HMRC through a VAT Return that shows the difference. On the other hand, if you have charged more VAT than you’ve paid then you will need to pay the HMRC the difference.

Do I have to be VAT-registered?

If your turnover has reached £79,000 in the previous 12 months or you expect to reach this turnover in the next 30 days then it is compulsory that you are VAT-registered.

Companies with turnovers lower than this figure do not have to charge VAT and therefore do not need to be registered. However this figure can change so be sure to check the HMRC website for updates on a monthly basis.

How do you register for VAT?

Registering for VAT is relatively simple, just complete the VAT registration forms found here. You will then be issued with a VAT registration number and a confirmation certificate. You will need to add your VAT registration number on all your business’s invoices.

What is the current VAT rate?

There are actually three different rates of VAT, so it is important to ensure you charge the correct amount. The rates of VAT in the UK are subject to change, to find the rates the current data can be found on the Gov website here.

Do I need to show VAT information on my invoice?

Yes, your invoice should include the price of your product, cost of VAT and the rate it was charged at. Your invoice will also need to include your VAT registration number. You will also need to include the transaction amount on your VAT account, which will give you the figures you need when filling out the VAT Return later.

What VAT can I reclaim?

As a registered business, you can typically reclaim the VAT that you have paid on goods and services that are to be used by the business. If this purchase is also for personal or private use then you are only able to reclaim the business’s portion of the VAT. You need to keep records to support your claim, with no VAT receipt you will not be able to claim back the full amount?

What VAT can’t I reclaim?

You’re not able to reclaim VAT on:

•    Anything for private use only
•    Business entertainment costs
•    Any product or service bought from other EU countries
•    Goods sold to you under the VAT second-hand margin scheme
•    Assets transferred to you as a going concern

Can I reclaim VAT on big purchases?

Yes, but there are special rules surrounding reclaiming VAT for:

•    Individual computers or computer equipment that costs £50,000 or more before VAT
•    Ships, boats and aircraft that costs £50,000 or more before VAT
•    Land or buildings that cost £250,000 or more before VAT

In these situations you may need to use the Capital Goods Scheme to reclaim the VAT over a period of several years. More information about this scheme can be found here.

Can I reclaim VAT from a bad debt?

If you’ve written off a debt then you are able to reclaim the VAT that’s been paid to the HMRC, provided that:

•    The debt is between 6 months and 4 and a half years old
•    You haven’t sold the debt on
•    You haven’t charged more than the normal price for the item

Reclaim bad debts in your VAT return by adding them to your Box 4 figure, make sure you keep records about the debt to support these claims.

Do I need to charge VAT to charities?

No, as a VAT-registered business you are able to sell certain goods and services at the zero or reduced rate. However, it is your responsibility to ensure that the charity is eligible for VAT relief and charge them VAT at the correct rate.

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