When you take on the responsibility of starting a small business, one of the first taxes you will likely cross paths with is VAT. And this tax is one that can provide ample headaches if it is not understood properly. VAT is generally straightforward, but there are some confusing parts to it. Because of this, it is recommended that you not only brush up on the business guide to VAT but take advice from your accountant on the subject.
Is VAT Applicable to My Situation?
VAT, or Value Added Tax, is one that is charged to the majority of goods and services supplied by registered businesses of VAT within the United Kingdom. While you can voluntarily register for VAT, it is a requirement if the turnover of your business is more than the VAT threshold, which is currently set at £83,000. Keep in mind that if the majority of your customers are not registered with VAT your prices will inflate by the rate of VAT, which is 20%.
How Does VAT Work?
After your business has become registered with VAT, you have to make sure that sales are charged with VAT. This is known as “outputs.” However, you will have the ability to reclaim the VAT that has been incurred on your expenses for your business. This is referred to as “inputs.” The difference between what has been collected on sales and what has been accrued on business purchases is then made payable to the HMRC. Here is one of many good guides on VAT.
How Can I Register for VAT?
Registering for VAT is easiest when done using the world wide web. This makes quite a bit of sense, especially when you take into account that you will need to submit returns using the internet. You will, of course, want to stay organized from the beginning when it comes to registering for VAT. Here are some tips for you to bear in mind:
1. When it comes to paying your quarterly returns, you will save yourself ample time and trouble using accounting software rather than a spreadsheet. This will also allow you to pay your return online easily.
2. Store your records in one bookkeeping package so that if you are subject to a VAT inspection it will be carried out without trouble.
3. Once your business is registered with VAT, you will need to make sure your invoices are qualifying as VAT invoices. Using invoicing software can aid with this and help you relieve some worry.