VAT is Value Added Tax, a tax on spending recently reduced by the Chancellor from 17.5 percent on top of the sale price to 15 percent.
Many business reach a minor or major tipping point when they hit around sixty five thousand pounds typically of income into the business. At this stage the owner has to consider VAT registration.
VAT registration can be a terrible idea for the food businesses in particular, where a great deal of expenses are zero rated for VAT – as VAT registration is compulsory currently after a 67k threshold. The VAT on business purchases may be claimed back by businesses, who must also charge VAT on their prices of sales.
VAT registered businesses must keep accurate records and accounts. The main thing is to ensure that they are complete, up to date and easy for VAT officers to access when or if you have a VAT inspection.
You may register for VAT even if you do not have to. Some businesses do this to make themselves more credible, smooth over the gap between upping their charges and/or paperwork, or so that they can claim back VAT on business purchases.
You can also register for VAT earlier than you need to – for example, if you know you will make taxable supplies or relevant acquisitions in the near future. You must then account for VAT on all your taxable supplies from a registration date you cannot change.
The main UK legislation is the Value Added Tax Act 1994, otherwise known as VATA 1994. It contains most of the main principles of VAT law but it omits many key details which are filled by statutory instrument.
Many businesses trip a little over the gap of not being registered and the even if mainly psychological step of being a VAT registered company. With helpful experience our advice is to plan ahead.