VAT or Value Added Tax. An often mind-boggling area of tax for most organisations whether you are self-employed, run a business, or manage a charity. In this month’s article we break it down and simplify it with the headlines that every business owner and manager needs to know.
Who does VAT apply to?
VAT applies to all businesses or sole traders if their VAT taxable turnover exceeds £85,000 in any twelve-month period or for a period of 30 days or more. What is VAT taxable turnover? This is the total value of what you sell – whether goods or services – that is not exempt. More on exemption in a moment.
If your goods and services are exempt (or out of scope) but you buy goods or services from other EU countries to use in your business that exceed a total value of £85,000 you will still need to register for VAT.
If you or your business are not in the UK you do not need to register. However, if you supply goods and services to the UK you will have to.
Exempt or out of scope
There are a number of exempt items, including:
- Insurance
- Health services by doctors
- Postage stamps or postal services
If your business starts to sell non-exempt items as well, then you can register voluntarily. However, once the value of such items or services exceeds the £85,000 threshold then you must register.
There are also a number of items that are classed as ‘out of scope’, which include the following:
- Charitable donations where nothing is received in return
- Statutory fees, such as the London Congestion Charge
- Goods sold as part of a hobby
- Goods and services that are bought and used outside of the European Union
How to register
It is quick and easy to do online and you can either do it yourself or ask your accountant to do it on your behalf. To register you need to create an online VAT account which you can then use to submit your annual returns. You will need a few bits of information to hand, including your bank details, turnover amounts, and details of your business activities. The date on which you first register becomes your ‘effective date of registration’ and from then on is the date on which you pay VAT and file your annual accounts.
Invoicing
Once you have registered for VAT you will also need to include it on all your invoices. From this point forward, your invoices will have to include your VAT registration number and have a separate line itemising the VAT amount and a total invoice amount.
Failing to register
If you fail to register then you will be liable to pay a penalty for late registration. The longer you leave it, the higher that penalty will be. However, if you have a genuine reason for delayed registration there may be scope for a reduced or cancelled penalty. Talk to HMRC or your accountant as soon as possible should this be the case.
For full details on VAT and advice on how it may apply to your or your business talk to one of our team at Bells Inc. Hamilton Stewart today. Email us at or call us on 020 8763 1711 and we will be happy to help.
