Registering for VAT
If your business has achieved sales of £79,000 or more over the last twelve months or you expect it to do so over the next twelve you should register and account for VAT. What follows is only applicable to a business that is registered for VAT.
Calculating VAT Transactions
VAT that your business charges when selling goods is known as the output tax. VAT that is charged to the business by its suppliers of goods and services is known as the input tax.
Output tax minus input tax represents the value of VAT to be remitted to HMRC. If however input tax is greater than output tax HMRC will refund the difference.
If fixed assets such as plant and machinery, other types of equipment or furniture are sold VAT will have to be added to the sale. However this is not the case in the event of the sale of a company car. This is because as VAT for company cars cannot be set off as input tax, it is not required to add VAT when they are sold.
The Tax Point
Where an invoice or bill is issued for sales or purchases it will carry a date known as the tax point.
For VAT purposes the tax point is presumed to be the date when the VAT transaction took place. This means that regardless of whether the cash for individual invoices issued is yet to be collected or paid in respect of purchases, the VAT on both has to be accounted for and settled at the end of each quarter.
Rates of VAT
There are currently three rates of VAT that apply in the UK:
Standard Rate 20%
Reduced Rate 5%
Zero Rate 0%
Examples of reduced rate items include oil, gas and electricity for domestic (but not business) use, while the most common examples of zero rated items include food and some but not all drinks, books, periodicals and newspapers and children’s’ clothing.
There are also classes of items that are regarded as being exempt, meaning that they are outside the scope of VAT. Examples of these include insurance, finance and charitable fund raising.
VAT on Imports from the EU
Goods purchased from the EU are VAT (and import duty) free. This applies to all purchases from the EU, regardless of their country of origin.
For example if a UK company buys merchandise from a German company, which in turn had purchased them from China, both VAT and import duty would have been paid when the merchandise had been imported into Germany. The UK buyer is not therefore required to pay these charges again.
VAT on Non-EU Imports
In the case of direct imports from outside the EU, VAT is assessed on the cost of the goods imported plus shipping charges, the value of import duty and customs clearance charges. If the goods being imported are assessed as being VAT exempt in the UK, then it will not be payable on importation.
VAT on Exports
All exports are VAT exempt. However there are procedures that have to be observed for this to be the case. For more on this follow the link below to the article on VAT and Exports.
The VAT Return
The VAT return is made quarterly, one month after the end of the quarterly period. For example if a VAT quarter ends 31st March, both the return and payment must be submitted by the end of April. There are financial penalties if this is not done by the due date and that includes failing to make the return as well as failing to pay any VAT that may be due.
Since the 1st. April 2012 all VAT returns now have to be submitted online.