Value Added Tax Accounting Services
If you need to get your head around all the complexities of VAT with all of its rules and regulations, Finance Equation can help ensure you don’t over or underpay. Understanding how the process works is important, as well as knowing the exact figure of how much money you have to pay as tax and how to calculate it thus becomes critical.
Table of contents
- What is VAT?
- EU Regulation
- VAT Turnover Requirements
- How Much is VAT in the UK?
- Why and When is a VAT return needed by a business?
- VAT returns for small businesses and limited companies
- What is the process for completing and submitting VAT returns?
- What are the different VAT taxation schemes?
- VAT inspections
- What Does a VAT Accountant Do?
What is Value Added Tax (VAT)
VAT is a consumption tax imposed on goods and services and is paid by the final consumer. The business selling the goods charges the tax from the consumer. If this business buys materials from a local manufacturer, it also pays a percentage value as tax to this supplier. It applies whenever “value” is added to the commodity.
Value Added Tax in the European Union is assessed on the value added to all goods and services that are bought or sold for use or consumption. Commodities exported out of the European Union are not subjected to this tax.
VAT Turnover Requirements
If your business turnover is above a certain amount (£85,000 for 2020) then you have to register for this value-added tax and submit monthly, quarterly, or yearly returns. Our Accountants can help you determine if your business needs to be registered or not and we can prepare returns and submit them for you as well as give you advice.
The process is simple and requires you to visit the relevant page on gov.uk. Proof of your annual turnover, information regarding the business activity, and bank information is required to complete your registration.
Once you have registered for value added tax, it is charged on most business transactions. A business will normally pay this on purchases and charge this on their sales.
The registrations enable you to make reclaims if a difference exists in the taxation you’ve paid and the amount that you’ve collected. The reclaim is calculated by subtracting the purchase tax imposed on you and the sales tax that you charge the consumer. The taxation is indirectly paid by the final customer of the product or service. However, only registered businesses can make reclaims.
How Much is VAT in the UK?
The tax is calculated as a percentage of the selling price of the commodity. This percentage reflects the “value” that has been added to the original product. It is charged at different rates for various transactions, current rates are:
- Standard rate – 20%
- Reduced rate – 5%
- Zero rate – 0%
If you want to know more about this taxation, please visit the following UK Government webpage. Here, you will find information regarding current rates, thresholds and FAQS.
This taxation applies to commodities or “taxable supplies”. Some examples of the goods and services taxed include;
- Business sales
- Hiring or loaning of goods
- Selling business assets
- Products sold to staff (canteen food)
- Business goods used for personal reasons
- ‘Non-sale’ goods such as part-exchange.
Why and When is a Value Added Tax return needed by a business?
We will first establish if your business needs registration or not, and if it does, our accountants will guide you through the process. After you successfully register, you will begin filing your returns as the law states.
Out accounting team will give you beneficial advice and guide you in filing your tax returns. You benefit from this taxation as you receive a greater relative incentive in comparison to other imposed taxes. This is because the tax you have paid as a buyer is subtracted from the tax you have to pay to HMRC.
Depending on how you trade, the value-added tax is more complex. There are different rules if you trade internationally as there may be reverse charge rules that apply to your business. If you trade internationally on platforms such as Amazon or eBay you may have to register in a country other than the UK. There are some special rules if you trade in land or property. Often planning is essential to make sure you don’t pay more than you have to.
VAT returns for small businesses and limited companies
If a small business has a turnover that exceeds a set limit, the business must register to pay tax.
Often at times, calculating the payments and reclaims made becomes a hassle. To make things easier for you, our accountants manage these requirements for small to medium-sized businesses.
Our client base includes small to medium-sized businesses, sole traders, partnerships and property developers. We provide all the assistance you need to ensure you are in charge to manage changing regulations and red-tape.
We offer cloud-based accounting solutions, designed to capture all your sales and purchases data. This ensures that your sales and purchases tax is recorded accurately as well as being Making Tax Digital compliant.
What is the process for completing and submitting returns?
Making tax digital means you can no longer use the government gateway portal to submit your returns. You now have to use HMRC compliant software to submit your returns. The difference between sales and purchase taxes is payable/reclaimable to HMRC. You can only charge VAT if you have registered with HMRC and you should show your registration number on your sales invoice.
After registration, you become eligible to submit all tax returns online from your account. Your account will also remind you of the important dates you need to remember. The deadline for submitting tax returns is extremely important. The accounting software associated with HMRC helps with filing returns directly without entering the details separately. Late filing penalties apply if you are late for the second time and increase every time you are late.
Returns are filed through a return form. This form should mention the monetary amount you believe you have to pay and the amount you believe you can claim. It should also contain what your tax refund is. Lastly, the form should contain details of the total sales and purchases your business has made.
What are the different VAT taxation schemes?
There are different taxation schemes that you can opt for such as the Flat Rate Scheme and the Margin Scheme. The flat rate scheme is designed to simplify your record keeping for sales and purchases allowing you to apply a fixed flat rate to your gross sales to determine the tax payable to HMRC. You can benefit from this scheme if your annual turnover is £150,000 or less. This scheme is generally suitable for businesses that don’t make a lot of taxable purchases.
The margin scheme is suitable when you sell second-hand goods. You pay value added tax on the difference between the purchase and selling price and we can help you determine if a particular scheme is to your benefit.
HMRC is responsible for carrying out numerous inspections every year. It conducts inspections on businesses it has suspicions about. The main purpose of an inspection is to ensure that you are paying and reclaiming the right amount of tax. It also makes certain that you follow all laws and regulations while running your business. The HMRC summarises the findings of the inspection in a letter. This letter includes information regarding any incorrect payments and lists corrections for your taxation account. These inspections are also called compliance visits.
What Does a VAT Accountant Do?
At Finance Equation, we have a specialist accounting team who are on hand to advise you on what scheme will work best for your business.
We provide you with the service of filing your tax returns thus giving you a chance to remain at ease of your administrative burdens. Moreover, our online cloud accounting software enables us to give you real-time advice and assistance, if and when you need it and our software means we can easily file your returns.
Ready to Speak to Someone?
Our accountants will provide you with leading-edge cloud accounting solutions that will submit your returns effortlessly. Call us on 020 3086 7472 for an initial discussion on how we can support your business.