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03/02/18 21:53
Common misconceptions about VAT. Be aware!
Many smaller business owners are unaware of how VAT works, when they have to register, and the side effects of VAT Registration. Here is a handy tip list worth remembering.
1. If your business sales currently exceeds £85,000 per annum, it is compulsory to register for VAT and it is illegal not to! Even if your Sales are Zero Rated for VAT (ie food selling, farm sales,), you still have to register. The legal obligation is on you to monitor your Turnover. Your Accountant is not a clairvoyant and will not know the level of your Turnover during a year, only after the year has ended and after you have supplied your records for the year. By then you may have breached the VAT threshold for a lot longer than you appreciated. Do your sums.
2. Registering for VAT as a sole trader brings in all of your business activities, and all of your businesses, irrespective of the turnover level of secondary businesses. You cannot pick and choose which of your businesses to apply VAT to, after Registration. They are all registered!
3. There are three rates of VAT to charge your customers. Standard Rate 20% will apply to most non-food trading. This covers the bulk of business trades. Zero rate 0% applies to food retailing, food production and manufacture, farming. The Reduced Rate of 5% applies mainly to home heating and energy sales.
4. VAT has very little to do with your profits. Traders experiencing difficult periods have often asked me why they still have to pay VAT whilst incurring losses. The answer is above - you are a collector of VAT.
We manage clients VAT registrations, work out VAT Calculations, submit VAT Returns, and arrange VAT Payments. We also apply and operate HMRC approved VAT Schemes available for some VAT Registered businesses, which can offer some savings.
If you need help, or if you would like a general discussion about how VAT affects you, please contact our VAT Department for expert advice.
Written by:
Norman Elliott FCA
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