Skip to content
English
More support
Go to www.nasaaccountants.com
  • There are no suggestions because the search field is empty.

An Introduction to VAT

What is VAT?

Value Added Tax (VAT) is an indirect tax charged on goods and services sold in the UK, this tax is normally collected by businesses when they invoice their customers. The standard rate for VAT is 20% and VAT is normally paid over to HMRC on a quarterly basis.

Registering for VAT:

In order to be able to charge VAT to your clients, you must first become VAT registered with HMRC.

Most UK businesses can register for VAT voluntarily, but it is a legal requirement to register if your sales exceed £90,000 in a 12-month period, so it is very important to keep track of your sales on a regular basis. Once you breach the threshold, you are likely to need to register and then charge VAT (20%) on all sales you make.

There are certain goods and services that may be exempt from charging VAT, a complete list from HMRC on these goods and services can be found here, though we encourage any clients to speak to their client if they think they might fall within the scope of exempt services.


 

 

VAT Schemes:

When registering for VAT there will be a choice of several different schemes, the most common schemes for small businesses are listed below:

Standard Rate Scheme:

  • This scheme allows you to reclaim VAT on eligible purchases, reducing the amount you pay to HMRC.
  • You may not be able to reclaim VAT on all purchases, as some expenses will not have had VAT charged on them or are restricted from reclaim by HMRC. You can always check with your accountant if you are not sure on what VAT you are able to reclaim.
Flat Rate Scheme:
  • You do not reclaim VAT on individual purchases on this scheme; however, you pay a smaller percentage of the VAT you charge back to HMRC.
  • For most businesses, this will be a fixed rate of 16.5%, with a discount of 1% in your first year as a VAT-registered business, paid to HMRC.
  • To join this scheme your expected VAT taxable turnover must be £150,000 or less for 12 months. After this your annual turnover must be less than £230,000, else you must leave the scheme.

There are other schemes that may be relevant depending on your business type, which we will support you in making sure you are on the best scheme for your business.

Invoicing

From the date of registration, VAT invoices should be sent to clients, which need to include specific information and the relevant VAT rate – more information can be found here. Most software will automatically produce invoices in this format once set up correctly.

We would always recommend raising invoices to your clients on your software even if you are on a self-billing arrangement. Not only does this help maintain strong accountancy records, but it also prevents any costly errors and helps you keep track of when and how much you are getting paid for your work.

Occasionally there may be reasons why you might not need to charge VAT on your invoices to clients, such as overseas clients or services that are out of the scope. This can be quite complex and the consequences of getting it wrong can be significant. We would advise that clients always get in touch before removing VAT from their invoices to clients, so we can help you confirm that the correct criteria are met.

VAT Returns and Records

As a VAT registered business, you are required to submit quarterly VAT returns to HMRC. For those clients with VAT returns in their package, this will be something we will work with you on to prepare the VAT return and submit it on the business’s behalf.

You must keep the necessary invoices and purchase receipts to support your VAT return calculations for 6 years; this can be in either digital or physical format. Most software has a simple way to attach receipts/photos to transactions as an easy way to store these

Construction Industry Scheme and VAT

If your business is within the Construction Industry Scheme (CIS), then you may face the VAT reverse charge. This is where the client accounts for the VAT instead of the supplier, meaning the sub-contractor does not charge VAT and the contractor pays it directly to HMRC, you can check if this is required for your business here.

If you believe this applies to you, please speak with your client manager so we can help you set this system up.

How Nasa can help you manage your VAT

  • Support at every step along the way - from helping you choose the right VAT scheme for your business, completing the registration and submitting returns to HMRC
  • Software efficiency - We can help you choose an appropriate software to manage your VAT affairs and set this up with your specific business in mind
  • Expert knowledge - We have over 20 years of expertise to help your business manage its VAT affairs effectively and accurately.
  • Handling HMRC on your behalf - Nasa is a verified and registered tax agent with HMRC, which allows us to submit VAT returns and liaise with HMRC once authorised by the business to do so
  • Compliance that will save your business time and money – Non-adherence to VAT deadlines, mistakes in invoices or returns can be very costly. We are here to ensure your business submits accurate and timely returns to HMRC.

Please note, this guidance is only intended to be an introduction to the VAT rules, which can be very complex, and so if you have any concerns (e.g. when working with an overseas client, ceasing trade) please speak to your client manager who will be happy to advise.