Value Added Tax (VAT) is tax that we all – both businesses and consumers – pay when we buy certain items. It’s an EU harmonised tax on all goods that you purchase over a certain threshold.
It’s a consumption tax, so the more you buy the more you pay. At the moment, the standard rate of VAT is 20%, so if you buy yourself a cup of coffee that costs £2, you’ll pay 40p on top of that cost in VAT – and the total you’ll pay is £2.40.
As a business. you charge that extra 20% on all your VATable products and services, and add it to the net costs on your invoices. You then collect that VAT money and pay the it to HM Revenue & Customs (HMRC) every quarter throughout the year.
When you’re a VAT-registered business, you can also claim back any VAT costs. This happens every quarter as part of your VAT return.
As soon as your turnover reaches £85k (the VAT threshold for the 2017/18 tax year), you must register for VAT. But you can also choose to register early for VAT purposes if there’s an advantage to your company.
If you’d like to know more about VAT, give us a call on 01454 300 999, or drop an email to email@example.com