VAT returns: what you need to know

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If you’ve decided to start your own business to give you the freedom and flexibility you need as a mum, there are a few additional factors you will need to consider. That includes the collection Value Added Tax (VAT) on behalf of HMRC. You may not have to be VAT registered, but if you are, it’s essential you understand your obligations.

What is VAT?

Value Added Tax (VAT) is a tax charged on the sale of products or services to another business or customer. If you are VAT registered, you’ll have to submit a VAT return to the tax authorities every quarter. You can also reclaim the VAT you pay when buying goods and services from other VAT-registered businesses.

Do you have to register for VAT?

Not necessarily. You have to register for VAT if your business is involved in the sale of ‘taxable supplies’ and your turnover for the previous 12 months has risen above the threshold (£83,000 for 2016/17). You must also register for VAT if you think your turnover will exceed the threshold in the next 30 days.

Taxable supplies include sales in the UK that are subject to the standard, reduced or zero rate of VAT. Supplies of some services received from outside the UK are also subject to VAT.

Can you register for VAT voluntarily?

Yes. In some cases in can be beneficial to voluntarily register for VAT, even if your business does not meet the £83,000 threshold. You can choose to register for VAT at any time. It might make sense to register your business for VAT if:

  • You buy lots of products and services from VAT registered businesses and would like to have this tax deducted from the VAT charged on sales;
  • You work with large businesses that only deal with VAT-registered suppliers.

What is the rate of VAT?

You might assume that all VAT is charged at the 20 percent standard rate, but in fact there are four rates that apply to products and services in the UK.

  • Standard rate (20 percent) – Applies to most products and services
  • Reduced rate (5 percent) – Applies to fuel, power and energy-saving materials
  • Zero rate (0 percent) – Includes books and newspapers, children’s clothes, public transport and food.
  • Exempt from VAT – Education, insurance, training and medical expenses are all VAT-exempt

How to register and pay VAT

You must register within 30 days of your business’s turnover exceeding the £83,000 threshold. Fail to do so and you could end up paying a penalty as well as the amount owing from the time you should you have registered.

The good news is that registering and paying VAT is a fast and simple process. You register to pay VAT online and your quarterly payments will be automatically set up when you register. The deadline for each quarterly payment will be shown on your online return, and this will usually be one month and seven days after the end of the VAT period. All your VAT payments must be made electronically.

And there you have it, some of the key things you need to know to meet your small business’s obligation to register and pay your VAT.

*This article has been provided exclusively to Working Mums by KPMG Small Business Accounting, specialist accountants for contractors and small businesses.

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