Small business guide to VAT

Business software provider Sage gives instructions on negotiating VAT for companies around the qualifying threshold.

Unlike other taxes, VAT is collected on behalf of HMRC by registered businesses. Once you’re registered for VAT, you must charge the applicable rate of VAT on any services you provide, or products you sell.

If you sell your products or services abroad, or if you’re in the process of registering for VAT, be particularly careful with your VAT invoices.

For example, you may be able to zero-rate some sales of goods outside the UK, and if you’re selling services to business customers who belong in the EU, these sales could be outside the scope of UK VAT.

Make sure that you ask for, and receive, the right amount of money from your customers, and ensure you pay the correct amount of tax to HMRC in order to avoid fines and interest charges.

There are three VAT rates currently – the standard rate (20 per cent), a reduced rate (5 per cent), and zero rate. Some items are completely exempt from VAT.

Below, we look at the key areas of VAT.

VAT schemes

When you become VAT-registered you’ll be assigned to the Standard VAT scheme; however, there are other schemes available, depending on your business’ turnover. It may be beneficial to use one of these schemes, depending on the specific circumstances of your business.

Sending the return

All VAT returns must be sent online, as part of the VAT registration process a VAT online account (or Government Gateway account) is created. There are a number of alternative methods available to complete the online submission process.

Staying compliant

Keeping VAT records:

You must keep VAT records for at least six years. You can keep them on paper, electronically or in software. Records must be accurate, complete and readable.

If you’ve lost a VAT invoice you can’t rely on a photocopy. Ask the supplier for a duplicate (marked ‘duplicate’).

You must keep a separate record of the VAT you charge and the VAT you pay on your purchases. This record is called a ‘VAT account’. There aren’t any rules on what a VAT account should look like, but it must show some key things. Click here to find out what they are.

VAT visits and inspections:

VAT officers can visit your business to inspect your VAT records and make sure you’re paying or reclaiming the correct amount of VAT.

HMRC will usually request a copy of your accounts data to check over before deciding whether to make a physical visit or not, sending data backup from Sage Accounts software is sufficient for this. You’ll usually be given seven days’ notice if they do decide to make a visit and they’ll confirm what information they’ll want to see and if they want to inspect your premises.

Before a VAT inspection you should make sure that all your VAT records are in order.

How often you get a visit depends on a number of factors.

Further reading on VAT:

Related Topics

Tax & Vat

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