VAT ExplainedVAlue Added Tax (VAT)
Most things you buy from the majority of retailers include a VAT charge. This is due to those retailers or business’ being registered for VAT with HMRC and they are required by the government to include it on most services and goods.
But what exactly is VAT, who pays it & why?
VAT is a tax added to the value of most things you buy, both goods & services at a rate set by HMRC (currently 20%). VAT is collected from you by any business who is registered for VAT and paid to the government. VAT does not result in a business paying more tax.
Business’ will collect VAT from its customers and also pay VAT on what they buy. The difference between those amounts is either paid to or collected from the government by that business.
So how might this affect you your business?
Firstly HMRC require any business with VAT taxable turnover of more than £83,000 per year to register for VAT. If your business turnover (the total amount of money earned by your business in one year) reaches this amount then VAT registration is compulsory. Regardless of your business turnover you can voluntarily register for VAT. You will have certain responsibilities if you register for VAT.
Once your business is registered for VAT then you must charge VAT on top of the price of any goods or services your business supplies its customer. The current rate of VAT is 20%. Therefore you must add 20% to each invoice you submit to One Motion and each invoice must also display your VAT registration number.
There is an alternative VAT scheme known as the flat rate scheme whereby you simply pay HMRC a percentage of the total of your business’ turnover including VAT for that period, this scheme is designed to minimize paperwork for small business’. The percentage you will pay depends on the main nature of your business and you will also receive discount on that percentage for your first year that you are registered for VAT.
It is up to you to decide if you feel registering for VAT is advantageous to your business, if you are unsure we would recommend you seek the advice of a qualified accountant.
You must inform One Motion and any of your other clients of any change to your VAT registration status as soon as possible so we can ensure VAT is added or removed from any purchase orders sent to you by One Motion.
You can register for VAT online via the following link: www.online.hmrc.gov.uk/registration/newbusiness/business-allowed
You will be given a unique VAT registration number along with a registration certificate.
Once registered for VAT you must keep an accurate record of all VAT charged to your customers and any VAT paid on items or services for your business. You will be required to submit a VAT return to HMRC each quarter (every 3 months), this is an accurate account of all VAT inputs into your business (VAT charged to your customers) and all VAT outputs from your business (VAT charged on items or services your business has purchased). The difference between these 2 amounts will either need to be paid to HMRC by your business or paid back to you in the form of a VAT rebate from HMRC.