VAT is a tax that you can commonly see across the UK without even considering it. A consumption tax like this is often printed on receipts and can be an integral part of any retail shopping experience.
What is VAT ?
VAT is otherwise known as value-added tax consumption tax applied to any product or value-added in the supply chain. The total amount of VAT applied to the cost of a product is related to the cost of the materials used in the development and the amount of tax that has already been spread throughout the production chain of the products. This tax was initially introduced in 1973 and has become the third-largest source of state tax revenue.
When do companies pay VAT ?
It is crucial to know about value-added tax if you are running a business. If a business has an annual threshold above £85,000, it must register for VAT and complete a quarterly VAT return. When a company is VAT registered, it must continue to charge VAT on the goods and services it sells. The current VAT rate is 20% for goods and services.
Consumers must also pay VAT on goods and services they purchase from other businesses. The general idea of VAT taxes is that the VAT you charge against the VAT collected should eventually balance out for your business. After the quarterly income tax return registration, you will receive an amount of the HMRC based on any additional amount you owe or an invoice for the amount of the different VAT you may have to the government.
Including VAT on invoices and listing the cost of goods and services before VAT is significant for any business. If you think your turnover may exceed £85,000 a year, you need to make sure you charge VAT on your goods and services as a business. This also applies if you are an independent professional running your own business.
We can help with advice and assistance on VAT
Contact our tax professionals today if you want more information about VAT and how you can balance VAT with HMRC. We can advise you on the best time to register for VAT and some of the best ways to improve your balance to avoid VAT refunds. As a group of tax experts, we have helped many businesses with solutions VAT and savings that connect to your business; contact us today to learn more.