Understanding VAT Rates and How They Impact Your Business

The UK has a wide range of taxes that all businesses, large or small, are required to pay. These taxes may seem annoying, but they are important and should be taken very seriously.

The VAT is one of the most important taxes that a company has to pay. Although it’s a fairly straightforward tax, there are nuances worth examining to avoid financial headaches. In today’s blog we will cover VAT. We’ll explain what it is, how much it costs, and the impact on your business.

We here at Account Ease have helped a wide range of businesses in their accounting and tax setups. Account Ease experts can help you if you are in the following industries: Property, Construction, Professional Services (including Digital & Creative), Retail & eCommerce, Technology & Software, or Retail & eCommerce.

What Is VAT?

VAT is Value Added Tax. It is a tax collected whenever is added to a service or product. Businesses must pay HMRC VAT when they rent or sell their products or services. Both consumer and business sales are subject to VAT. The VAT is a tax on consumption, so it’s paid not by the business that sold the product, but rather the customer. It is an indirect tax, because the company collects the tax for the business.

VAT registered businesses charge VAT to their customers on their products, but also on the goods and service that they purchase such as stock or raw materials.

The amount of VAT you must register for depends on your annual sales and the type of products that you sell. Different types of goods are subject to different VAT rates.

What Is The VAT Registration Threshold?

The VAT threshold is determined by your VAT taxable turnover, which includes the total value of all your sales that are not exempt from VAT.

VAT registration

The threshold is more than £85,000.

Registration of distance selling

The threshold for selling goods to UK businesses is £70,000.

Registering goods imported from the EU

This is more than 85,000 £.

Deregistration threshold

If you’re no longer eligible for VAT you must cancel your registration, the threshold for this is less than £83,000.

What is the VAT percentage?

Standard VAT is 20%, and it applies to most products. There is also a reduced rate of 5 % on certain goods like car seats for children, as well as a zero (0) rate on children’s clothing and food.

What Is My VAT Number?

A VAT registration number, also known as a “VAT number”, is unique to each business that has registered to pay Value Added tax. You can find this number on the VAT registration certificates that HMRC gives you. You can find the number on the invoice of the business that you are looking for.

The VAT number has 9 digits and usually starts with GB. This number is important because if you enter an invalid number, your invoice will be invalidated by HMRC.

How Does VAT Impact My Business?

The amount that you charge for goods and services is the main way VAT affects your business. After registering, you will be required to charge an additional 20% on any sales made when the invoices are paid. This is where VAT is deducted.

Benefits Of Being VAT Registered

You can claim VAT you paid on business services

The VAT is applied to supplies like computers, chairs and desks. These items are subject to VAT at the time of purchase. However, you can claim it back from the government by filing your taxes.

Looks professional

A VAT registration will show other businesses that your business is professional and serious.

You can make your business appear bigger than it is

It can make you appear larger than you really are. Investors, lenders, or suppliers will assume that your turnover is over the £85,000.

Need advice about VAT or looking for an accountant to help with your business’ finances? Contact us today.

We are confident that our team, with its level of expertise and experience, can provide a wide range of solutions to help you. We can assist you with a wide range of services, including accounting, tax, self assessment tax return accountants and payroll services, as well as R&D tax credit. To find out more, call us on 0208 133 4599 or send us an askus@account-ease.co.uk

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