VAT stands for Value Added Tax and it is a tax that is applied and administered by HMRC on all sales made by VAT registered businesses in the UK.
As part of our fixed-fee package, we can manage all of your VAT needs and submit quarterly VAT returns. To ensure that you have a greater understanding of VAT and what obligations you have, we have constructed this jargon-free introductory guide.
If you have any questions about VAT or our services, feel free to speak to one of our expert accountants and they will be happy to help.
VAT registration is only compulsory once your business exceeds a certain amount of annual turnover. As of 2014, the VAT threshold is £81,000, meaning that once your business turnover exceeds this amount, you need to register for VAT.
Whilst VAT registration is compulsory once you exceed the threshold, you can register for it even if your turnover doesn’t exceed the £81,000 limit. There are a number of reasons as to why people may choose to register for VAT before they are legally obliged to, these include:
As of 2014, VAT is charged at 20%. This means that if you charge a client £1,000 on an invoice, you need to add 20% onto that amount to cover VAT. So you will actually invoice the client for £1,200 inclusive of VAT.
Your accountant will be able to help you calculate how much VAT you have charged and paid over a set period to determine how much VAT you will end up paying to HMRC.
We have written a more comprehensive guide to the flat rate VAT scheme that you may find useful, but below we have summarised the key points to give you a quick overview.
The flat rate scheme was introduced in 2002 to reduce the cost of complying with VAT obligations and to make it easier for contractors and small business owners to calculate VAT.
In a nutshell, you charge VAT at the standard rate of 20% but pay it back to HMRC at a slightly reduced rate. Essentially, you can make a profit from charging your clients VAT. The amount of VAT you pay to HMRC depends on your profession and you can see a summary of the flat rate percentages on the VAT section of HMRC’s website.
For example, IT Contractors have a flat rate percentage of 14.5%. So whilst they charge VAT at 20%, they only need to pay it to HMRC at a rate of 14.5%.
For a more in-depth overview, make sure you read our comprehensive guide to the flat rate VAT scheme.
We are experts in accountancy and understanding the needs of contractors. Our qualified accountants have a wealth of experience in helping people just like you get to grips with the complex world of tax and accountancy.
We offer a comprehensive fixed-fee monthly package for just £55 and featured below are the key benefits:
To find out more about the package or to speak to one of our friendly accountants, please call 020 7481 4743 and we will be happy to help.
Now that you know more about VAT and the flat rate scheme, you might also find the following pages of use: