PLA

VAT Accounting Services

When it comes to accounting, value-added tax (VAT) is one of the most complicated and frustrating aspects of running a business. Since 1973, business owners have been responsible for calculating and paying VAT instead of the consumer.

Registration, selecting a VAT scheme to register for, calculating VAT, and reconciling VAT accounts are all part-time jobs in and of themselves, which is why hiring a professional VAT accountant can alleviate a lot of the stress associated with this complicated tax system.

What is VAT?

VAT is a type of consumption tax, meaning it is levied on purchases of goods and services, as well as other taxable supplies. VAT is an important part of running a business, and it can be charged on a variety of goods and services.

VAT is a tax that is ultimately paid by the customer, not by individual businesses. While businesses pay VAT to Her Majesty’s Revenue and Customs (HMRC), the customer has already paid the actual cost, which is covered by the price of the goods or services purchased. As a result, it is an indirect tax, though businesses must fully report it to HMRC.

Do I Need To Register My Company for VAT?

If your business has a turnover of more than £85,000, you must register for VAT. This will necessitate charging VAT on all services or goods provided by your company; however, you can only charge VAT if you are registered. You'll be able to reclaim VAT on goods and services you buy for your company if you register for VAT.

What is a VAT Number?

Only VAT-registered businesses are assigned a company VAT number, which can be found on your VAT registration certificate. This important piece of paperwork will also tell you when your first VAT return is due, as well as the date your business crossed the UK VAT registration threshold and had to register.

What Are Our Responsibilities as a VAT Registered Company?

You must charge VAT on your goods or services as a VAT-registered business, and you can reclaim VAT on those you buy for business purposes.

Your business’s VAT is calculated based on the full value of what you sell. Even if you operate on an exchange or part-exchange basis, you must charge VAT on sales. If you charge a customer without including VAT, HMRC will still consider the sales price you charge to be VAT inclusive.

VAT-registered businesses must submit a VAT return to HMRC every three months to report the amount of VAT they have charged or paid. Even if you don’t have any VAT to report, you must fill out this form.

You must pay HMRC any VAT overcharges you make to your customers. If you paid more VAT than you charged your customers, you can reclaim the difference from HMRC.

What items are exempt from VAT?

The VAT rate is determined by the type of product or service being purchased. Some services and goods are exempt from VAT. These are some of them:

  • Training or education
  • Fundraising for charitable causes
  • Commercial real estate sales and rentals
  • Services in insurance and finance
  • Stamps (postage stamps)
2

Do I Need To Register My Company for VAT?

If your business has a turnover of more than £85,000, you must register for VAT. This will necessitate charging VAT on all services or goods provided by your company; however, you can only charge VAT if you are registered. You'll be able to reclaim VAT on goods and services you buy for your company if you register for VAT.

What is a VAT Number?

Only VAT-registered businesses are assigned a company VAT number, which can be found on your VAT registration certificate. This important piece of paperwork will also tell you when your first VAT return is due, as well as the date your business crossed the UK VAT registration threshold and had to register.

What's the Difference Between a 'Zero-Rate' and a 'VAT-Exempt' Rate?

The VAT on zero-rated supplies is not charged in the traditional sense, but at a rate of 0%, allowing businesses that supply these items or services to recover the VAT on their overheads and costs. VAT reclaims are not available for VAT exempt supplies.

You do not need to register for VAT if your business only sells VAT-exempt goods.

about-img-18

What Kinds of VAT Can I Reclaim?

Businesses can claim VAT on goods and services that are used exclusively for their business. VAT can be reclaimed for a variety of reasons, including:

  • Staff travel
  • Mobile devices and service used purely for business
  • Vehicles that are only used for business
  • For said vehicles, fuel, accessories, and maintenance

Some items are not eligible for VAT refunds, such as:

  • Entertainment costs
  • Anything that is solely for personal use
  • Purchases made in other EU countries

VAT Changes Following Brexit

Following the United Kingdom’s exit from the European Union, the domestic VAT rules that affect your business remain unchanged. If you regularly import and export goods to or from the continent, things have become a little more complicated.

New VAT Rules for EU imports

At the start of 2021, the United Kingdom exited the EU’s VAT regime. This means that when it comes to value added tax, EU countries are now treated the same as those outside the EU. In other words, any goods worth more than £135 imported from the EU or elsewhere must now account for import VAT.

When goods enter free circulation, such as when passing through a UK port, they are subject to import VAT. Your company has the option of paying import VAT now and later reclaiming it from HMRC using C79 certificates.

Alternatively, you can now take advantage of the government’s VAT “postponed accounting” system, which was implemented in January 2021. In a nutshell, it allows you to account for any import VAT through your VAT return rather than filing a separate return. It means you won’t have to pay the tax right away when your goods arrive in the UK, then claim it later.

If your company imports EU goods worth less than £135, you should use the reverse charge procedure to declare the VAT on your next VAT return.

Project_1
Project_4

Reforms to the EU's VAT on Exports

If your company sends goods across the English Channel, you’ll need to be familiar with the EU’s export VAT rules, which took effect in January 2021.

Because EU countries are now treated the same as non-EU countries, your exports to Europe will be zero-rated for UK VAT, resulting in a 0% rate. It means you won’t have to pay UK VAT on your goods, but you’ll still have to account for them in your VAT accounting.

It’s worth noting that if you’re sending goods directly to European consumers, you’ll need to check whether EU VAT registration is required in the countries you’ll be serving.

Why are the trade rules in Northern Ireland different?

Northern Ireland was granted special trade status as part of the Brexit agreement between the United Kingdom and the European Union. The goal was to avoid a hard border between Ireland and the United Kingdom. This is something to think about when planning your VAT strategy, and more information is available on the official government website.

self employed accountant

What Does a VAT Accountant Do?

VAT accountants devote time to ensuring that your company pays HMRC the correct amount of VAT and that all VAT registration procedures have been followed for the best VAT scheme for your company. VAT accountants will need access to your company’s records to ensure that the correct VAT taxes are collected at the correct rate for HMRC reporting.

VAT accountants can also provide crucial advice throughout the tax year and answer all of your questions, saving you time and frustration when dealing with the complicated VAT procedures. The sheer number of goods and services that correspond to VAT necessitates means that the services of such a team can prove invaluable (and save you a lot of money)

Furthermore, as a result of the passage of the “Making Tax Digital” Act in 2019, VAT returns must now be calculated and submitted digitally, and a business will no longer be able to submit its returns using HMRC online services. MTD functionally compatible software must be used to submit VAT returns.

In short, navigating the VAT process can be difficult and time-consuming. VAT accountants can help by taking care of all of these accounting procedures and ensuring that they are completed efficiently and accurately. Any company that sells goods and services that are frequently subject to VAT should hire a VAT accounting team.

Need a great VAT accountant?
The Pearl Lemon team is ready to help.
Contact us today to learn more.