VAT: Value Added Tax

Our VAT Service runs alongside our Bookkeeping Service to ensure that your VAT Returns are filed on time.

What is VAT ?

VAT Guide For UK Small Businesses

If your business is VAT Registered you must add VAT at the appropriate rate, usually 20%, to your sales invoices to your customers.

You must pay over to HMRC the difference between the VAT on your Sales, less the reclaimable VAT on your purchases and expenses. You will be able to claim back most of the VAT incurred on your business's purchases and expenses.

VAT is charged on most goods and services when a VAT registered business sells to either another business or to a non-business customer. There are some exceptions, eg. some foods; books; insurance.

VAT is also charged by HMRC on goods and some purchases and services that are imported from countries outside the European Union (EU).

There is also the VAT Flat Rate Scheme, which is described in our separate webpage.

Output Tax and Input Tax

• Outputs means Sales
• Output Tax is the VAT on Sales

• Inputs means Purchases & Expenses
• Input Tax is the VAT on Purchases & Expenses

When is the VAT paid over to HMRC ?

The VAT Payable should be paid over as part of a quarterly VAT Return, eg. March, June, September, December. Your dates will be notified to you by HMRC.

Most businesses now have to file their VAT Returns online.

You will have until the last day of the month following the VAT Quarter end, plus a further 7 days, to file the VAT Return online and pay the VAT over.

For example, if the VAT Return quarter end is 31st March then you will have until 7th May to file the return online and pay over the VAT.

Whilst the online VAT Return can be done on a weekend or Bank Holiday, take care to ensure that the money arrives by the 7th, especially if sending a cheque, or if you know that your online banking system needs several days to clear.

Should I Register for VAT ?

If you are a business, the goods or services you provide are called taxable supplies.

You must register your business for VAT if either:

1. Your total sales of taxable supplies for the previous 12 months has
    gone over the VAT Threshold, for most businesses:
    • 1/4/2013 to 31/3/2014    £79,000
    • 1/4/2014 to 31/3/2015    £81,000
    • 1/4/2015 to 31/3/2016    £82,000
    • 1/4/2016 to 31/3/2017    £83,000
    • 1/4/2017 to 31/3/2018    £85,000

2. You think your total sales of taxable supplies will soon go over this limit

Check with HMRC for up to date information.

You may also choose to register for VAT voluntarily.

What if your Customer does not pay you

There are two methods of calculating your VAT Return. It is up to you to choose which is suitable for your business, especially your cashflow. You do not need to notify HMRC which method (basis) you choose, but you must be consistent:

Accruals Basis
Under the Accruals Basis, you complete the VAT Return based on the dates of the sales and purchases/expenses invoices, it makes no difference whether you have been paid or not, or whether you have paid your purchases/expenses or not.

Cash Basis
Under the Cash Basis, you complete the VAT Return based on the dates when the sales and purchases/expenses invoices were actually paid. So if your customer doesn't pay you, you don't have to pay over the VAT to HMRC. Similarly, if you don't pay your suppliers, you cannot reclaim the VAT on those purchases/expenses.

What VAT on Purchases/Expenses cannot be claimed back?

Common Examples:
• Entertaining
• New cars that are not used exclusively for business purposes
• Goods and services for personal use

You cannot reclaim VAT on items that you have bought from suppliers in other European Union (EU) countries. You may be able to claim the VAT back from the relevant VAT body in those countries.

VAT On Expenses Incurred Before Registration

HMRC are quite generous in allowing VAT to claimed on purchases made before registration.

These are links to HMRC guidelines:
• GOV.UK: VAT registration - Purchases made before registration
• HMRC - VIT32000 - Input tax: pre-registration & pre-incorporation - reg. 111

More VAT Information

These links will take you to more information on the HMRC website:

VAT Invoice
When to register
Introduction to VAT