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VAT - Value Added Tax

On Cloud 9 Accounting VAT Services


Value Added Tax is complicated!

VAT tax is applied to the sale of most products and services

Current VAT rates are 20%, 5% and 0%

What is VAT?


VAT is short for 'Value Added Tax'. It's a tax on the sale of most goods and services.

For all examples, we will use a price of £120

You must charge VAT on your goods/services if they go over the registration threshold, currently £85,000

If you sell something for £100, you have to add the VAT, making the price £120


How do you work your VAT price?

Take your normal price, £100 and divide it by 1.2, £100/1.2 = £120

The VAT amount is £20


Gross vs Net VAT


This confuses man people

·         Gross VAT is the rice Including VAT so that the price would be £120

·         Net VAT is the price Excluding VAT. so the price would be £100

How to Calculate VAT


If the price is £120, the VAT element is £20

A simple way is to take the price, £120 and Divided by 6, £120/6 = £20

Types/Rates of VAT

·         20% - Applied to most goods and services

·         5% - Applied to Home Energy and safety products

·         0% - Zero-rated applied to Food and Children’s Clothes 

·         Exempt - Applies to Health Services

Payment of VAT

Most VAT is paid Quarterly to HMRC; however, you choose to pay Monthly

Cash vs Invoice VAT Filings

To help small businesses, you can use Cash accounting

You only must pay VAT to HMRC when your customers pay you

This is to help Cash Flow for Small Companies

The threshold is £1.35m

Invoice VAST means you have to pay HMRC on the value of your Invoices raised, regardless of whether your customer has Paid You.


Flat rate VAT scheme

To keep it very simple for small businesses, you can opt to go for a Flat rate VAT

Flat rate means you only pay VAT on sales at a Percentage rate.

E.g., 15% Flat rate would mean the VAT on your £120 sale would be £18, not the normal £20

However, you can't claim VAT on cost unless an item is over £2,000

The threshold for Flat rate VAT is £150,000, once over you must move to the standard Schemes

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