VAT - Value Added Tax
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