VAT is a tax that all of us pay regularly, as it is added to most day-to-day goods, but it is only when you are in business do you need to know more about this Value Added Tax. Here we cover the basics for you. 

What is VAT? 

VAT stands for Value Added Tax. 
 
It is a tax charged on most goods and services in the UK. 

What does this mean? 

It means that on most things you buy; whether it be clothes, food or tech, it will have VAT added to the price. For most of us, we won’t even be aware of this, as the goods will be labelled with the VAT-inclusive price. 

Rates of VAT 

Most goods and services will have standard rate VAT included. The standard rate of VAT is currently 20%. 
 
However, there are some goods and services that are subject to different rates, and this is dictated by complex VAT legislation. 
 
The other rates are:- 
 
Reduced Rate – 5% 
Zero Rate – 0% 
 
There are some items that are exempt or “outside the scope” of VAT. 
 
Note: Confusingly, zero Rate and exempt are not the same thing! 

When does VAT affect a business? 

As a business, if your annual turnover/sales (including zero-rated sales), exceeds the VAT registration 
threshold (set at £85,000 from 1 April 2017 to 31 March 2019), you must register for VAT. 
 
It is important to monitor your sales on a rolling 12-month basis to ensure you know if you reach the threshold. If you fail to register you may be charged a penalty. 
 
You can however register for VAT before this point, and this is known as voluntary registration. 

How do you register for VAT? 

To register for VAT, you must submit a VAT application online to HMRC. The easiest way to do this is to get in touch with your accountant (which is hopefully us!) and we will take care of it for you. 
 
The most important points to consider are:- 
 
- The date you will register from 
- How VAT registration may affect your pricing 
- The VAT scheme you wish to use to calculate your VAT liability 
 
We will help you through all of the above to ensure you make the best possible decisions in taking this big step for your business. 

What happens once a business is VAT registered? 

Once registered, a business adds VAT to its sales to effectively collect tax on behalf of HMRC. The VAT a business adds to its sales is not additional profit – it should be kept aside for repayment to HMRC (subject to the VAT scheme you select). 
 
Once a business is VAT registered, it must:- 
 
- Charge VAT, at the appropriate rate on all sales. 
- Prepare and submit a VAT return to HMRC each quarter. The way the VAT is reported and calculated will depend on which VAT scheme you choose. 
- Pay the VAT to HMRC 

What deadlines are involved? 

Deadline for registering for VAT – you must register within 30 days of your sales exceeding the registration threshold. 
 
Deadline for quarterly VAT returns – you must submit the VAT return and pay any VAT due by one month and seven days after the end of the VAT quarter i.e. if your VAT quarter ends on 31 May 2018, you must submit the VAT return by 7 July 2018. 
VAT is complicated! If you want to know more about VAT and how it may impact you and your business, get in touch with us at Effective Accounting. We have worked with contractors and small businesses for over 10 years, and our founder, Nicola, has over 15 years’ experience in the industry. 
 
 
 
 
Written by: 
 
Nicola J Sorrell -  
Effective Accounting 
 
Founder | Xero Champion | IR35 Expert 
 
 
Tagged as: VAT
Share this post:
 
I couldn't recommend them highly enough and will continue to use them for Spiral Static and all future ventures! 
 
 
Matt Badley | Spiral Static 
 
 
 
I have found their help in modernising my accounts invaluable and would recommend them to anyone in a heartbeat. 
 
Matthew Finch | Trailer Aid Ltd 
 
 
 
The whole team at effective accounting are exceptional.  
 
 
 
Jennifer Duthie | Skribbies Ltd 
 
 
 
Nicola is one of the most adept and accessible accountants that I have ever had the pleasure of working with.  
 
 
Carter Stewart | Transworld Consulting Ltd 
 
 
Choosing Effective Accountants has been one of the best decisions we made when we started our company. 
 
 
Matthias Geeroms | OTA Insight Ltd 
 
 
 
Nicola and the team have proven to be extremely professional, efficient and always on hand to answer any questions I have (and I have a lot!).  
 
Emily Hodges | EM Hodges Ltd 
 
 
 
I find the service to be prompt, professional and friendly. 
 
 
 
Simon Weightman | Mercury TS Ltd 
 
 
 
They are quick to respond and are always ahead of the curve for us. Keep it up and thank you. 
 
 
Freda McMahon | Lobster Noodle Ltd 
 
 
Our site uses cookies. For more information, see our cookie policy. Accept cookies and close
Reject cookies Manage settings