What is VAT?
Short for value-added tax. Not to be confused with personal tax.
Often thought of as sales tax, as it is added to almost everything that we buy.
At the time of writing this, in the UK 2020, the VAT threshold is £85,000.
This means that if turnover is above £85,000 over a 12 month period we must register for VAT with HMRC.
We can opt to voluntarily register if we feel this might be beneficial to our business.
Below are the common VAT rates:
20% is the standard VAT rate for most goods and services
5% is a reduced rate used for some goods and services, such as utility bills for example.
0% or Zero rated is applicable to many things including children clothing & books.
In addition, some items are exempt from VAT or have no VAT.
Only VAT registered companies can charge and reclaim VAT.
It can get confusing ensuring that the correct VAT amounts are being recorded when there are so many options to choose from.
It is always best to seek professional advice if you feel you need to be VAT registered.
Mistakes can be costly.