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

A UK business engaged in the sale of goods or services whose annual "vatable" sales reaches £85,000 (2017 / 2018) within any 12 month period must register for value added tax ( VAT).

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 your business is in turn charged by its suppliers is known as the input tax. The difference between output and input tax is accounted for to HMRC using the VAT return and remitted every three months. 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.

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.

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