VAT is a Europe-wide tax system that can be complicated.

Value added tax (VAT) is a tax that is charged on most goods and services that VAT-registered businesses provide in the UK. It is also charged on goods and some services that are imported from countries outside the European Union (EU), and brought into the UK from other EU countries.

Value added tax is charged when a VAT-registered business sells to either another business or to a non-business customer. When VAT-registered businesses buy goods or services they can generally reclaim the VAT they’ve paid.

There are three rates of value added tax, depending on the goods or services the business provides. The rates are:

  • Standard – 20 per cent
  • Reduced – 5 per cent
  • Zero – 0 per cent

There are also some goods and services that are exempt from value added tax or outside the UK VAT system altogether.

A business has to register for VAT when its taxable sales for the previous 12 months exceed the registration threshold (£81,000 for 2014/15; £82,000 for 2015/16). You can also register voluntarily in order to be able to reclaim your input value added tax. Generally VAT is reported to HMRC on a quarterly VAT return, and is paid at the same time.

There are several schemes to simplify the value added tax system for smaller businesses, including:

  • Annual Accounting Scheme – only one return is made per year with 3 quarterly payments on account followed by a balancing charge/refund.
  • Cash Accounting Scheme – VAT is calculated on payments actually received and made, rather than invoiced, which can assist cash flow.
  • Flat Rate Scheme – Instead of keeping track of the value added tax on all sales and purchases, a flat rate (dependant on the type of business) is applied to the gross sales figure to give the VAT payable each quarter.

There are several retailer and margin schemes available as well.

A business can deregister for VAT when its taxable sales for the previous 12 months drop below the deregistration threshold (£79,000 for 2014/15 and 2015/16).

A group of companies can account for value added tax as a group, submitting only 1 VAT return and trading under a single VAT Registration Number.

Value added tax is wide in its scope and there are many areas where a business can apply or operate the VAT framework to its advantage. At Tax Innovations we have the skills and experience to work with you in reviewing your business VAT affairs and identify ways to deal with value added tax more effectively.

If you would like to discuss how our VAT services can benefit your business, please email customerservice@taxinnovations.com or call us on 01962 856 990.

For an initial consultation please call us on 01962 856 990 or visit our contact page.