Registering for VAT
A UK business engaged in the sale of goods or services whose annual "vatable" sales reaches a threshold of £85,000 within any 12 month period must register for value added tax ( VAT).
The current threshold is £85,000 until the end of March 2020, where a new threshold may (or may not ) be issued.
This applies to all businesses, regardless of whether or not their sales are subject to VAT. A few examples of what constitutes vatable sales and their VAT rates are as follows - Note that zero rated sales qualify as "vatable".
| Standard Rate | 20% | Majority of Goods and Services |
| Reduced Rate | 5% | Electricity; Gas other (domestic) energy |
| Zero Rate | 0% | Books, Newspapers; Childrens Clothes; Exports |
Note that when forecasting using Figurewizard your figures are entered excluding VAT with the exception of company cars. All VAT transactions are automatically calculated and applied to forecasts by our system, including the quarterly returns.
Input and Output VAT
Once registered your business becomes responsible for charging and collecting VAT on sales; this is known as the output tax.
The VAT that is charged to your business by suppliers is the input tax. The difference between output and input tax is accounted for to HMRC using the VAT return and remitted by the end of the month plus seven days from the end of each three month period. If input VAT is greater than output VAT, the business will be entitled to a refund.
When planning financial forecasts using Figurewizard all VAT transactions are calculated by our system from the information (sales, margins, overheads, investment) and so on you enter without further intervention on your part.
How to Calculate a Sale Price Excluding VAT
Assume a sale price including VAT of 24.00 including VAT.
The table below illustrates how by adding the rate of VAT (as a number) to 1 then dividing the VAT inclusive price by the result returns the sale price excluding VAT.
| Sale Price Inc VAT | VAT Rate | Divide By | Sales Price Excl VAT |
| 24.00 | 20% | 1.2 | 20.00 |
| 24.00 | 15% | 1.15 | 20.87 |
| 24.00 | 8% | 1.08 | 22.22 |
Company Cars and VAT
Although input VAT can be set off against purchases of all goods, services and fixed assets, 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.
Exceptions are if the car is being used in a driving school, a taxi or self-drive hire. VAT is reclaimable on commercial vehicles.
The VAT Tax Point
The usual point in time that a VAT liability has been created is when delivery has been made. This is known as the "basic tax point".
If an invoice is then issued within fourteen days, the date of the invoice will represent the tax point and therefore the VAT return the transaction belongs to. However if that is not the case, the following known as the "actual tax point" will apply:
| No invoice (e.g. cash sales) | Date of supply |
| Invoice issued 15 days or more post supply | Date of supply |
| Prof-Forma: Payment required before shipment | Date of invoice or receipt of cash whichever is sooner |
The VAT Return
Every three months you are then required to submit a VAT return and pay any tax due to HMRC. 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 may not have 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 arising from their tax points. 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 not only is it 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.
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.
What happens to the VAT I have charged to a customer who becomes a bad debt? Can I reclaim the VAT and if so what are the rules and do figurewizard forecasts include any possible refunds?
A debt that remains unpaid for six months or more is accepted by HMRC as being a "bad debt" for the purposes of VAT. Figurewizard automatically calculates and applies all VAT transactions, including refunds for bad debts with no intervention required from the user.
How are the value of cars shown in the balance sheet. Do they include the vat or is it deducted?
As VAT cannot be relaimed for company cars, their balance sheet values are always calculated on the VAT inclusive price less depreciation, which is also calculated on the VAT inclusive price.
Note that everything else is always entered into the Figurewizard form excluding VAT.
I understand that sales vat has to be paid whether or not I have been paid but what about my own bills that I have not paid every quarter? Are these set against the output vat too?
@ jm goddard
The date that sales and purchases VAT has to be accounted for is the "tax point" which has to be shown on the invoices for goods and services. The tax point is normally the date of supply. Whether or not cash has been collected / paid is irrelevant; if the tax point falls within a given quarter that is when it has to be accounted for on the VAT return.