Before jumping right into VAT Return, let’s have a look at what does VAT mean. VAT is a tax that implies almost all products and services in the United Kingdom. The customer pays a standard rate tax to the government at the point of sale.
The manufacturer or distributed collects it at each stage of the production and distribution chain. Consequently, it is charged as a percentage of the total price during the final sale to a consumer.
What does Value Added Tax (VAT) mean for small businesses?
All firms need to register and file VAT return that provides taxable services or goods and have a turnover higher than the UK level. Some people confuse VAT return with the landlord tax return, which is wrong.
The VAT registration threshold in the United Kingdom is £85,000 per year. However, firms can still register for VAT even if they do not achieve the threshold. Unless you fit into a reduced rate category, you must charge the regular rate of 20% on all items and services as a VAT-registered business.
All VAT levied on a product must be paid to HMRC. However, a registered firm can also claim the VAT back on purchases that allow them to manufacture and sell their own taxable items.
Taxation in the Digital Age- MTD
HMRC is now encouraging firms to retain digital records of everything and submit tax returns electronically rather than on paper. It also helps you save a lot of time and space at work.
Incorrect tax returns can cost the government up to £9 billion per year. Thus, converting everything to a digital system reduces the chances of you making a mistake and receiving a bill at the end of the tax year.
You can charge VAT on taxable supplies as a small business, such as:
- Commercial sales (goods and services you sell)
- Goods sold to employees
- Hiring or lending someone goods
- Business items for personal purposes
The Varied VAT rates
Unless otherwise stated, the majority of things will come within the 20% standard rate.
The VAT on items with a reduced rate is usually only 5%. Gas and electricity in the home, children’s car seats, and geriatric mobility aids all fall within this category. VAT on food, attractions, and lodging have been reduced to 5% as of July 15, 2020.
Even though items are zero rates, they can still be VAT-taxable. It means you must record them on your VAT return, but the consumer is not charged any tax (0 per cent). Books and newspapers, children’s clothing, and motorcycle helmets are examples of zero-rate goods and services.
The Flat Rate Scheme for VAT
Depending on the type of business, the flat-rate plan allows small firms with a turnover of less than £150,000 to pay a fixed VAT return to HMRC. It also allows you to keep the difference between the VAT charged and the HMRC-agreed amount. However, it prevents you from claiming VAT back on your purchases.
You can join the VAT Flat Rate programme either online or by filling out a VAT600 FRS form (it’s not as terrible as it sounds) and mailing or emailing it back. If you have submitted a landlord tax return before, you might be aware of the hassles of doing the math. Hiring experts like SK Accountants & Tax Consultants Ltd. can be of great help.
If you’ve done any of the following, you won’t be eligible to join the scheme:
- You’ve been out of the scheme for the past 12 months.
- In the previous 12 months, committed a VAT infraction, such as VAT evading
- If you have been a member of a VAT group in the last 24 months
- In the last 24 months, you’ve registered as a business division for VAT
- A company linked to another company
- Became a member of a margin or capital goods VAT plan
How to effectively charge VAT?
If a transaction includes a product or service that is subject to standard, reduced, or zero rate VAT, you must:
- Make sure you’re charging the correct VAT rate
- Determine whether the price includes or excludes VAT
- Incorporate VAT information into your invoice
- Make a record of the transaction in your VAT account
- Make a note of the amount on your VAT return
When charging VAT on goods or services, calculating VAT return, or the amount of VAT you can claim back on items that were sold inclusive of VAT, you’ll need to do some math. If you are handling landlord tax return on your own, then it can become more strenuous.
Though the process of calculating and filing a tax return can take up a lot of your time, even a minor mistake can cost you a lot. So, it is always a better idea to take help from experts. If you need to file a VAT return or Landlord tax return, SK Accountants & Tax Consultants Ltd. is always a great choice. Get in touch with the expert accountants to do the math for you.