How to Calculate VAT

Output VAT is charged to the sale of goods and services; input VAT is paid on purchases. Output less input equals the net VAT payable to HMRC.

Registering for VAT

Any business engaged in the sale of goods or services whose annual turnover reaches £79,000 is required to register for value added tax ( VAT) by law. This applies to all businesses, regardless of whether or not their sales are subject to VAT.

Note that it is the precise point during any financial year when that threshold is reached that calls for registration to be made. Your business will then be required to add VAT at the point of sale where appropriate - Not all goods or services are subject to VAT.

As Figurewizard calculates all VAT transactions when producing forecasts from your the information you enter, all of your estimates should be entered excluding VAT with the sole exception of company car purchases and sales - This is because VAT on cars is not reclaimable. There is more on this below.

Input and Output VAT

Once registered your business becomes responsible for charging and collecting the tax that VAT represents on behalf of HMRC. This is known as the "output tax".

On the other hand the VAT that is charged to your business by its own suppliers of goods and services is known as the "input tax".

Calculating VAT

Every three months you are then required to pay HMRC the difference between the output and input tax. If however the input tax for goods and services you have purchased is greater than the output tax you have charged to your customers, you claim that difference back as a refund.

The fact that any transaction including VAT has not yet been paid is irrelevant to the amount that falls due to HMRC at the end of each quarter. The tax is calculated solely from the amounts shown at the point of sale. Non-payment by your customers or by your business has no bearing on this.

VAT returns and Payment Deadlines

You are required to submit an online VAT return to HMRC to account for the VAT payable every three months. Both submission and payment must be made within one month and seven days following the end of each three month period.

Note that it is not only an offence to fail to pay the VAT when it falls due (with cleared funds) it is also an offence to fail to submit a VAT return by then.

VAT on Company Cars

Although input VAT can be set off against purchases of all goods and services, there is one notable exception in respect of company cars.

The VAT charged on company cars cannot be set off as input tax. This only applies to cars however; it does not apply to commercial vehicles such as vans or trucks, for which the VAT can be reclaimed as input tax. It also means that when a company owned car is sold, VAT is not chargeable as the tax cannot be charged twice.

Figurewizard Forecasts and VAT

Our forecasts calculate and apply all VAT transactions simply from the information you supply on the form. No further intervention on your part is required.

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