Value Added Tax, more commonly referred to as VAT, is levied on the sale of products and services by UK companies. As a business, it is likely that you will need to pay VAT to HM Revenue & Customs (HMRC). However, this can be an area of confusion for a lot of companies, especially as some items are VAT-exempt, including gambling, insurance, postal services, health services, private education, and rent.

Who needs to pay VAT?

To determine whether you need to pay VAT, you will need to decipher what your VAT taxable turnover is, i.e. the total amount of all of your products and services sold that are not exempt.

The threshold currently stands at £83,000 in a 12-month period, so if your taxable turnover is over £83,000 you must register for VAT. You also need to register if you expect to go over the threshold within a single 30-day period, or if you receive items from the EU that are worth more than £83,000. Once becoming VAT registered there are circumstances where your business might have to deregister.

You need to pay VAT if you sell your goods and services to the UK, yet you and your business are not based here. This is the case irrespective of how much you make. Finally, if the business you take over is already registered, you may need to register too.

Don’t carry the burden of VAT alone

The burden of VAT can be a big one when you attempt to handle it alone. Firstly, you will need to register your documents with HMRC. This can be confusing for those who are not familiar with the jargon used. Moreover, if you do not register within 30 days of your turnover exceeding the threshold, you may get a penalty. Luckily, you won’t need to worry about this if you choose a reliable accounting firm, however.

You also need to determine what VAT scheme is going to be the best for your business. VAT schemes include the Flat Rate Scheme, Annual Accounting Scheme, and Cash Accounting Scheme. There is no right or wrong answer when choosing; it is all about determining what is right for you business, and this is what registered auditors can also assist with.

  • Flat Rate Scheme – This scheme is straightforward, as you will simply pay a fixed rate of VAT to HMRC. However, if this is not right for you, you will end up paying more than you need to.
  • Annual Accounting Scheme – Instead of submitting four VAT returns, you are able to submit one return annually.
  • Cash Accounting Scheme – With this scheme, instead of calculating VAT based on invoices sent and received, it is based on payments made and received.
  • Margin Scheme
  • TOM’s Scheme

There are also cases for Partial VAT exemption.

There are pros and cons associated with each solution. For example, annual accounting will reduce paperwork and make it easier to manage cashflow. However, it can also lead to you paying higher payments if your turnover decreases, and it is not ideal for companies that regularly reclaim VAT. This is why you need expert assistance. At Dyer & Co, we not only handle your VAT commitments for you, but we advise you on the best VAT scheme and ensure you are making the most of all tax breaks to reduce payments. Don’t struggle with VAT any longer – simply call us today and we’ll be happy to talk over your needs.

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